FIDELITY D & D BANCORP INC
For the period ended Mar 31, 2025. Filed May 9, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 9, 2025
FDBC$68.70+0.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001437749-24-034533
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-09.
0001437749-25-015781
Item 2. 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 168 previous paragraphs and 182 current paragraphs.
84 unchanged; 64 reworded; 33 added; 20 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 36 previous and 37 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 (33)
Current report
(1) See non-GAAP financial measurements reconciliation on page 36.
Current report
The Company’s cost of interest-bearing liabilities was 2.49% for the three months ended March 31, 2025, compared to 2.51% for the same 2024 period. The reduction in average short-term borrowings contributed to the lower cost of interest-bearing liabilities.
Current report
For the three months ended March 31, 2025, the provision for credit losses on loans was $455 thousand partially offset by a $85 thousand net benefit in the provision for unfunded commitments, compared to a $125 thousand provision for credit losses on loans and a $50 thousand net benefit in the provision for credit losses on unfunded loan commitments for the three months ended March 31, 2024.
Current report
For the three months ended March 31, 2025, the increase in the provision for credit losses on loans compared to the prior year period was due to higher loan growth and higher net charge-offs. For the three months ended March 31, 2025, the higher net benefit for credit losses on unfunded commitments was due to a larger reduction in unfunded commitments during the quarter compared to the same period in 2024.
Current report
Total non-interest income increased $0.4 million, or 9%, to $5.0 million for the first quarter of 2025 compared to $4.6 million for the first quarter of 2024. The increase in non-interest income was attributed to $0.2 million in wealth management fees and $0.1 million in interchange fees. Additionally, during the first quarter of 2025, gains of $0.5 million on the sale of a commercial loan and $0.3 million from the sale of a property were offset by $0.8 million in losses recognized on the sale of securities.
Current report
Non-interest expenses increased $0.9 million, or 6%, for the first quarter of 2025 to $14.6 million from $13.7 million for the same quarter of 2024. Salaries and benefits expense increased $0.6 million due to an increase in the number of bankers, group insurance costs, and banker incentives in the first quarter of 2025. Additionally, the Company saw an increase of $0.3 million in advertising and marketing expenses primarily due to an increase in Neighborhood Assistance Program donations from which the Company recognized $0.2 million in additional tax credits causing a corresponding decrease in PA shares tax expense.
Current report
The Company’s investment policy is designed to complement its lending activities, provide monthly cash flow, manage interest rate sensitivity and generate a favorable return without incurring excessive interest rate and credit risk while managing liquidity at acceptable levels. In establishing investment strategies, the Company considers its business, growth strategies or restructuring plans, the economic environment, the interest rate sensitivity position, the types of securities in its portfolio, permissible purchases, credit quality, maturity and re-pricing terms, call or average-life intervals and investment concentrations. The Company’s policy prescribes permissible investment categories that meet the policy standards and management is responsible for structuring and executing the specific investment purchases within these policy parameters. Management buys and sells investment securities periodically depending on market conditions, business trends, liquidity needs, capital levels and structuring strategies. Investment security purchases provide a way to quickly invest excess liquidity in order to generate additional earnings. The Company generally earns a positive interest spread by assuming interest rate risk using deposits or borrowings to purchase securities with longer maturities.
Current report
During the first quarter of 2025, the Company sold nineteen available-for-sale securities with the intention of replacing the holdings with better yielding bonds. The Company recognized a loss of $0.8 million as the amortized cost was $17.5 million compared to the sales proceeds of $16.7 million. This sale was due to the ongoing management strategy of improving margin and focusing on more effective interest earning assets.
Current report
For the three months ended March 31, 2025, municipal loans increased $8.3 million, or 8%, from $101.7 million at December 31, 2024, to $110.0 million at March 31, 2025 which was attributed to the origination of two municipal loans to two unrelated borrowers totaling $8.3 million.
Current report
For the three months ended March 31, 2025, non-owner occupied commercial real estate loans increased $7.6 million, or 2%, from $394.2 million on December 31, 2024, to $401.8 million on March 31, 2025 due to general portfolio growth and construction loans that stabilized and were converted to non-owner occupied commercial real estate during the quarter.
Current report
As of March 31, 2025, the residential loan portfolio increased by $2.2 million, or less than 1%, to $527.5 million compared to the December 31, 2024 balance of $525.3 million due to general portfolio growth.
Current report
From December 31, 2024 to March 31, 2025, other real estate owned (ORE) decreased from $429 thousand to $119 thousand, a $310 thousand decrease, which was attributed to the sale of one commercial property totaling $196 thousand and sale of two residential properties totaling $233 thousand. These sales were partially offset by the addition of two properties totaling $119 thousand.
Current report
Net of depreciation, premises and equipment decreased $0.9 million during the first three months of 2025 primarily due to depreciation expense. These decreases were offset by $0.1 million in additions to premises and equipment.
Current report
During the first three months of 2025, other assets decreased by $0.9 million. The decrease was primarily due to $1.1 million less in internal DDA overdrafts from the timing of payroll coupled with a decrease of $0.8 million in deferred tax assets. The primary asset to offset the decrease was an increase of $1.4 million in prepaid assets.
Current report
Liquidity
Current report
Liquidity management ensures that adequate funds will be available to meet customers’ needs for borrowings, deposit withdrawals and maturities, facility expansion and normal operating expenses. Sources of liquidity are cash and cash equivalents, asset maturities and pay-downs within one year, loans HFS, investments AFS, growth of core deposits, utilization of borrowing capacities from the FHLB, correspondent banks, IntraFi's ICS and One-Way Buy program, the Discount Window of the Federal Reserve Bank of Philadelphia (FRB), Atlantic Community Bankers Bank (ACBB) and proceeds from the issuance of capital stock. Though regularly scheduled investment and loan payments are dependable sources of daily liquidity, sales of both loans HFS and investments AFS, deposit activity and investment and loan prepayments are significantly influenced by general economic conditions including the interest rate environment. During low and declining interest rate environments, prepayments from interest-sensitive assets tend to accelerate and provide significant liquidity that can be used to invest in other interest-earning assets but at lower market rates. Conversely, in periods of high or rising interest rates, prepayments from interest-sensitive assets tend to decelerate causing prepayment cash flows from mortgage loans and mortgage-backed securities to decrease. Rising interest rates may also cause deposit inflow but priced at higher market interest rates or could also cause deposit outflow due to higher rates offered by the Company’s competition for similar products. The Company closely monitors activity in the capital markets and takes appropriate action to ensure that the liquidity levels are adequate for funding, investing and operating activities.
Current report
The Company’s contingency funding plan (CFP) sets a framework for handling liquidity issues in the event circumstances arise which the Company deems to be less than normal. The Company established guidelines for identifying, measuring, monitoring and managing the resolution of potentially serious liquidity crises. The CFP outlines required monitoring tools, acceptable alternative funding sources and required actions during various liquidity scenarios. Thus, the Company has implemented a proactive means for the measurement and resolution for handling potentially significant adverse liquidity conditions. At least quarterly, the CFP monitoring tools, current liquidity position and monthly projected liquidity sources and uses are presented and reviewed by the Company’s Asset/Liability Committee. As of March 31, 2025, the Company had not experienced any adverse issues that would give rise to its inability to raise liquidity in an emergency situation.
Current report
During the three months ended March 31, 2025, the Company grew cash and cash equivalents by $127.8 million. During the period, the Company’s operations provided $11.7 million mostly from $17.9 million of net cash inflow from the components of net interest income partially offset by net non-interest expense/income related payments of $4.7 million. Cash inflow from interest-earning assets, deposit growth and loan payments were used to fund the loan portfolio, pay down short-term borrowings, invest in bank premises and equipment and make net dividend payments. The Company received a large amount of public deposits over the past few years. The seasonal nature of deposits from municipalities and other public funding sources requires the Company to be prepared for the inherent volatility and the unpredictable timing of cash outflow from this customer base, including maintaining the requirements to pledge investment securities. Accordingly, the use of short-term overnight borrowings could be used to fulfill funding gap needs. As of March 31, 2025, the Company had $185.0 million in unpledged securities. Subsequent to quarter end March 31, 2025 through the date of filing, the Company began experiencing a decrease in cash balances to fund the temporary deposit outflow due to the seasonal spending within specific products, as well as, assisting in funding loan growth.
Current report
During 2021 and 2022, the Company also experienced deposit inflow resulting from businesses and municipalities that received relief from the CARES Act, American Rescue Plan Act ("ARPA") and other government stimulus. As of March 31, 2025, the Company has approximately $8.0 million, down from $13.5 million at the end of 2024, in remaining ARPA balances. The Company expects that the funds will be depleted by year end 2026.
Current report
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the financing needs of its customers and in connection with the overall interest rate management strategy. These instruments involve, to a varying degree, elements of credit, interest rate and liquidity risk. In accordance with GAAP, these instruments are either not recorded in the consolidated financial statements or are recorded in amounts that differ from the notional amounts. Such instruments primarily include lending commitments.
Current report
Lending commitments include commitments to originate loans and commitments to fund unused lines of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Unfunded commitments of existing loan facilities totaled $456.2 million, standby letters of credit totaled $29.8 million and the level of uninsured and non-collateralized deposits was $624.3 million at March 31, 2025. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Current report
As of March 31, 2025, the Company maintained $211.2 million in cash and cash equivalents and $316.8 million of investments AFS and loans HFS. Also, as of March 31, 2025, the Company had approximately $752.5 million available borrowing capacity from the FHLB, $20.0 million from correspondent banks, $152.3 million from the FRB, and $363.0 million from the IntraFi Network One-Way Buy program. The combined total of $1.8 billion represented 67% of total assets at March 31, 2025. Management believes this level of liquidity to be strong and adequate to support current operations.
Current report
Capital
Current report
During the three months ended March 31, 2025, total shareholders' equity increased $7.7 million, or 4%, due principally to $3.7 million higher retained earnings from net income of $6.0 million plus a $3.6 million, after tax, improvement in accumulated other comprehensive income from lower net unrealized losses recorded on available-for-sale securities. Capital was further enhanced by $0.2 million from investments in the Company’s common stock via the Employee Stock Purchase Plan (ESPP) and $0.3 million from stock-based compensation expense from the ESPP and restricted stock. Partially offsetting these increases, there were $2.3 million of cash dividends declared on the Company’s common stock. The Company’s dividend payout ratio, defined as the rate at which current earnings are paid to shareholders, was 38.79% for the three months ended March 31, 2025. The balance of earnings is retained to further strengthen the Company’s capital position.
Current report
As of March 31, 2025, the Company reported a net unrealized loss position of $52.0 million, net of tax, from the securities portfolio compared to a net unrealized loss of $55.6 million as of December 31, 2024. The $3.6 million improvement to accumulated other comprehensive loss during the three months ended March 31, 2025 was primarily from the $3.9 million increase in net unrealized gains on AFS securities. Management believes that changes in fair value of the Company’s securities are due to changes in interest rates and market conditions, and not in the creditworthiness of the issuers.
Current report
Generally, when U.S. Treasury rates rise, investment securities’ pricing declines and fair values of investment securities also decline. Although the yield curve has been volatile over the past year, a declining rate environment began in 2024 and has continued into fiscal year 2025. During the period of declining rates, the Company expects pricing in the bond portfolio to improve. There is no assurance that future realized and unrealized losses will not be recognized from the Company’s portfolio of investment securities.
Current report
The tangible common equity (TCE) ratio (non-GAAP) was 7.11% and 6.98% for the three months ended March 31, 2025 and 2024, respectively. At March 31, 2025 and 2024, the held-to-maturity securities portfolio had $23.9 million and $24.2 million in unrealized losses, net of deferred taxes. If the TCE ratio was adjusted to include the unrealized losses on held-to-maturity securities, the adjusted TCE ratio (non-GAAP) would have been 6.22% and 5.99%(1) at March 31, 2025 and 2024, respectively.
Current report
To help maintain a healthy capital position, the Company can issue stock to participants in the DRP and ESPP plans. The DRP affords the Company the option to acquire shares in open market purchases and/or issue shares directly from the Company to plan participants. During the first three months of 2025, the Company re-issued treasury shares to fulfill the needs of the DRP. Both the DRP and the ESPP plans have been a consistent source of capital from the Company’s loyal employees and shareholders and their participation in these plans will continue to help strengthen the Company’s balance sheet.
Current report
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Since the Company (on a consolidated basis) is currently considered a small bank holding company, it is not subject to regulatory capital requirements.
Current report
Under these guidelines, assets and certain off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk-based capital to total risk-weighted assets (Total Risk Adjusted Capital) of 8%, including Tier I common equity to total risk-weighted assets (Tier I Common Equity) of 4.5%, Tier I capital to total risk-weighted assets (Tier I Capital) of 6% and Tier I capital to average total assets (Leverage Ratio) of at least 4%. A capital conservation buffer, comprised of common equity Tier I capital, is also established above the regulatory minimum capital requirements of 2.50%. As of March 31, 2025 and December 31, 2024, the Bank exceeded all capital adequacy requirements to which it was subject.
Current report
(1) See non-GAAP financial measures reconciliation on page 36.
Current report
The following table depicts the actual and required capital and related capital ratios of the Company, on a consolidated basis, and the Bank as of March 31, 2025 and December 31, 2024. No amounts were deducted from capital for interest-rate risk in either 2025 or 2024.
Current report
The Company advises readers to refer to the Supervision and Regulation section of Management’s Discussion and Analysis of Financial Condition and Results of Operation, of its 2024 Form 10-K for a discussion on the regulatory environment and recent legislation and rulemaking.
Removed paragraphs (20)
Previous report
three and nine months ended September 30, 2024 and 2023
Previous report
Net interest income was $45.5 million for the nine months ended September 30, 2024 compared to $47.1 million for the nine months ended September 30, 2023. The $1.6 million, or 3%, decrease was the result of interest expense growing faster than interest income. On the asset side, the loan portfolio caused interest income growth by producing $9.5 million more in interest income primarily from an increase of 47 basis points in FTE loan yields on $97.4 million in higher average balances. On the funding side, total interest expense increased by $11.6 million primarily due to an increase in interest expense paid on deposits of $12.0 million from an 86 basis point higher rate paid on a $97.1 million larger average balance of interest-bearing deposits, partially offset by a decrease in interest expense on borrowings of $0.4 million for the nine months ended September 30, 2024 compared to the same period in 2023.
Previous report
The overall cost of interest-bearing liabilities was 2.60% for the nine months ended September 30, 2024 compared to 1.79% for the nine months ended September 30, 2023. The cost of funds increased 66 basis points to 1.99% for the nine months ended September 30, 2024 from 1.33% for the same period of 2023. The FTE yield on interest-earning assets was 4.59% for the nine months ended September 30, 2024, an increase of 47 basis points from the 4.12% for year-to-date September 30, 2023. The Company’s FTE (non-GAAP measurement) net interest spread was 1.99% for the nine months ended September 30, 2024, a decrease of 34 basis points from the 2.33% recorded for the same period of 2023. FTE net interest margin decreased by 16 basis points to 2.70% for the nine months ended September 30, 2024 from 2.86% for the same 2023 period due to the increase in rates paid on interest-bearing liabilities growing at a faster pace than the yields on interest-earning assets.
Previous report
The Company’s cost of interest-bearing liabilities was 2.70% and 2.60% for the three and nine months ended September 30, 2024, respectively, compared to 2.17% and 1.79% for the same 2023 periods. The increase in interest paid on deposits contributed to the higher cost of interest-bearing liabilities. The FOMC is expected to decrease the federal funds rate throughout the remainder of 2024, but the Company may continue to experience pressure to maintain higher rates on interest-bearing deposits due to the competitive nature of deposits in our market area. To help mitigate any impact of the imminent change to the economic landscape, the Company has successfully developed and will continue to strengthen its association with existing customers, develop new business relationships and generate new loan volumes.
Previous report
For the three months ended September 30, 2024, the provision for credit losses on loans was $0.7 million and provision for credit losses on unfunded loan commitments was $0.1 million. For the three months ended September 30, 2024, the provision for credit losses on loans increased $0.2 million compared to the three months ended September 30, 2023 due to growth in the loan portfolio of $67.0 million in the third quarter of 2024 compared to growth of $16.1 million in the same quarter of 2023, specifically in the commercial loan portfolio. For the three months ended September 30, 2024, the provision for credit losses on unfunded loan commitments increased $0.4 million compared to the three months ended September 30, 2023 due to a higher growth in unfunded loan commitments, specifically commercial construction commitments.
Previous report
For the nine months ended September 30, 2024, the provision for credit losses on loans was $1.1 million and the provision for credit losses on unfunded loan commitments was $0.2 million. For the nine months ended September 30, 2024, the provision for credit losses on loans decreased $0.3 million compared to the nine months ended September 30, 2023 due to a reduction in net charge-offs. For the nine months ended September 30, 2024, the provision for credit losses on unfunded loan commitments increased $0.3 million compared to the nine months ended September 30, 2023 due to a higher growth in unfunded loan commitments, specifically commercial construction commitments.
Previous report
Total non-interest income increased $0.7 million, or 15%, to $5.0 million for the third quarter of 2024 compared to $4.3 million for the third quarter of 2023. The increase in non-interest income was primarily attributable to an additional $0.1 in million service charges on commercial loans, $0.1 million in higher fees from trust fiduciary activities, $0.1 million more in financial services revenue, and fees from commercial loans with interest rate hedges which increased $0.1 million.
Previous report
Total non-interest income for the nine months ended September 30, 2024 was $14.2 million, an increase of $0.8 million, or 7%, from $13.4 million for the nine months ended September 30, 2023. The increase was primarily due to $0.5 million in additional trust fiduciary fees and $0.2 million higher fees from financial services. During the first nine months of 2023, the Company recorded a $0.1 million write-down associated with a branch closure reducing non-interest income. In the third quarter of 2023, the Company received $0.3 million in recoveries from acquired charged-off loans, offsetting the increase in other income. Additionally, the Company experienced a decrease of $0.2 million in fees from commercial loans with interest rate hedges compared to the first nine months of 2023.
Previous report
Non-interest expenses increased $1.0 million, or 8%, for the third quarter of 2024 to $13.8 million from $12.8 million for the same quarter of 2023. The increase in non-interest expenses was primarily due to $0.9 million higher salaries and benefits expense from higher salaries related to new hires and banker incentives. There were also increases in professional services of $0.1 million and PA shares tax of $0.1 million.
Previous report
Non-interest expenses increased to $41.1 million for the nine months ended September 30, 2024, an increase of $2.0 million, or 5%, from $39.1 million for the nine months ended September 30, 2023. The increase in non-interest expenses was primarily due to the $2.0 million increase in salaries and benefits expense coupled with increases in professional fees of $0.3 million and PA shares tax of $0.3 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increases were partially offset by $0.4 million less in fraud losses and $0.2 million less advertising and marketing expenses.
Previous report
The ratios of non-interest expense less non-interest income to average assets, known as the expense ratio, were 1.46% and 1.43% for the nine months ended September 30, 2024 and 2023. The expense ratio increased because of higher non-interest expenses. The efficiency ratio (non-GAAP) increased from 62.33% at September 30, 2023 to 66.44% at September 30, 2024 due to non-interest expenses increasing as net interest income declined. For more information on the calculation of the efficiency ratio, see “Non-GAAP Financial Measures” located within this management’s discussion and analysis.
Previous report
During January 2023 with the 10-year U.S. Treasury yield declining, $31.2 million of securities were able to be sold yielding 3.62% (FTE yield of 4.33%) at a breakeven level. These proceeds were used to pay down FHLB overnight borrowings costing 4.80% at that time. Due to volatility in the levels of borrowings during October 2023 and the increasing expected dependency on borrowing capacity from experiencing deposit fluctuations while funding loan growth, the Company evaluated a liquidity strategy to deleverage the reliance on short-term borrowings. As a result of this evaluation, in November 2023, the Company sold longer term available-for-sale general market tax-free municipal securities with a carrying value of $35.6 million with a weighted average yield of 1.28% with a 13.5 year weighted average maturity as part of a liquidity and net interest margin enhancement strategy for a $6.5 million loss recognized in gain (loss) on sale of available-for-sale debt securities. The $29.1 million in proceeds received were used to retire short-term borrowings with a cost of approximately 5.50%. While the Company has ample funding sources available, management felt it prudent to create additional capacity for the borrowings over the near term should the banking industry again experience funding pressures as it did in March of 2023. In addition, since the municipal securities sold were purchased in a much lower rate environment, there is an immediate improvement in net interest margin (NIM) of over 5 bps as a result of paying down the borrowing with the sale proceeds. The sale removed a 422 basis point negative spread and will contribute towards incrementally improving net interest income, earnings per share and NIM every year starting in 2024. The cost savings from paying down the advances with the sale of low yielding bonds will also allow the pre-tax loss of $6.5 million realized on the sale to be fully recouped prior to the term of the bonds sold.
Previous report
During the second quarter of 2024, the Company reviewed its commercial real estate loan portfolios to ensure the loans in those portfolios reflect proper purpose and collateral. Based on this analysis, loans with a net balance of $25.4 million were reclassified between commercial real estate owner-occupied and commercial real estate non-owner-occupied categories. This adjustment was applied to December 31, 2023, for purposes of comparison. As of December 31, 2023, the non-owner-occupied portfolio increased and the owner-occupied portfolio decreased by $26.1 million.
Previous report
For the nine months ended September 30, 2024, municipal loans increased $18.6 million, or 20%, from $94.7 million on December 31, 2023, to $113.3 million at September 30, 2024 which was attributed to the origination of a Tax Anticipation Note to a single municipal borrower totaling $15 million and general portfolio growth.
Previous report
For the nine months ended September 30, 2024, non-owner occupied commercial real estate loans increased $44.4 million, or 13%, from $337.7 million on December 31, 2023, to $382.1 million on September 30, 2024. The largest contributor to the increase was five loans to unrelated borrowers originated totaling $39 million, all with loan-to-value limits within adherence of the Company's policy.
Previous report
As of September 30, 2024, the residential loan portfolio increased by $18.1 million, or 4%, to $519.6 million compared to the December 31, 2023 balance of $501.5 million. The increase was due to a shift from mortgage loans sold in the secondary market to loans held-for-investment, primarily jumbo mortgages with rates fixed for 5, 7 or 10 years with adjustable rates thereafter.
Previous report
From December 31, 2023 to September 30, 2024, foreclosed assets held-for-sale (ORE) increased from $1 thousand to $430 thousand, a $429 thousand increase, which was attributed to the addition of four properties to two borrowers totaling $649 thousand, which were added to ORE during 2024. These additions were offset by the sale of one commercial property totaling $1 thousand and addition and subsequent sale of one commercial property totaling $219 thousand.
Previous report
Net of depreciation, premises and equipment increased $1.8 million during the first nine months of 2024. The Company purchased $1.2 million in fixed assets and added $2.9 million in construction in process during the first nine months of 2024. These increases were offset by $1.8 million in depreciation expense and assets totaling $0.5 million that were transferred to other assets. The Company opened a new branch in Wilkes-Barre in 2023. The Company opened a new Easton Branch in July 2024. The Company has substantially completed the remodeling of the Main Branch located in Dunmore, PA. The Company is in process of corporate headquarters construction which may continue to increase construction in process and is evaluating its branch network looking for consolidation that makes sense for more efficient operations.
Previous report
During the first nine months of 2024, the $2.0 million decrease in other assets was due mostly to a $1.4 million decrease in deferred tax assets.
Previous report
Offsetting these non-maturing deposit decreases, CDs increased $96.1 million, or 45%, as of September 30, 2024. One relationship transferred approximately $45 million from interest-bearing checking accounts to Company uses the Certificate of Deposit Account Registry Service (CDARS). The Company expects the highly competitive deposit environment to continue with a need for promotional money market and CDs to attract new funds. For the remainder of 2024, the Company expects the majority of deposit growth to be in the money market and CD portfolio.
Reworded paragraphs (64)
Previous wording
The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of September 30, 2024 compared to December 31, 2023 and a comparison of the results of operations for the three and nine months ended September 30, 2024 and 2023. Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company’s 2023 Annual Report filed on Form 10-K.
Current wording
The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of March 31, 2025 compared to December 31, 2024 and a comparison of the results of operations for the three months ended March 31, 2025 and 2024. Current performance may not be indicative of future results. This discussion should be read in conjunction with the Company’s 2024 Annual Report filed on Form 10-K.
Previous wording
We are impacted by national, regional and market area economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, Lackawanna and Luzerne counties, and Eastern Pennsylvania, Northampton county. In the third quarter of 2024, the Federal Open Market Committee (FOMC) decreased interest rates by 50 basis points. According to the U.S. Bureau of Labor Statistics, the national unemployment rate for September 2024 was 4.1%, up 0.4 percentage points from December 2023. However, the unemployment rates in the Scranton - Wilkes-Barre – Hazleton (market area north) and the Allentown – Bethlehem – Easton (market area south) Metropolitan Statistical Areas (local) decreased as the national unemployment increased. The local unemployment rates at September 30, 2024 were 3.4% in market area north and 3.1% in market area south, respectively, a decrease of 0.1 percentage point and 0.1 percentage point from the 3.5% and 3.2%, respectively, at December 31, 2023. The median home values in the Scranton-Wilkes-Barre-Hazleton metro and Allentown-Bethlehem-Easton metro each increased 7.0% and 5.8% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to grow 1.0% and 2.0% in the next year. In light of these expectations, we believe the real estate values could continue to increase at these levels with the declining rate environment. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.
Current wording
We are impacted by national, regional and market area economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, primarily in Lackawanna and Luzerne counties, and Eastern Pennsylvania, primarily in Northampton county. According to the U.S. Bureau of Labor Statistics, the national unemployment rate for March 2025 was 4.2%, up 0.1 percentage points from December 2024. Similar to the national rate, the unemployment rates in the Scranton - Wilkes-Barre – Hazleton (market area north) and the Allentown – Bethlehem – Easton (market area south) Metropolitan Statistical Areas (local) increased. The local unemployment rates at March 31, 2025 were 4.6% in market area north and 4.2% in market area south, respectively, an increase of 0.8 percentage points and 0.8 percentage points from the 3.8% and 3.4%, respectively, at December 31, 2024. The median home values in the Scranton-Wilkes-Barre-Hazleton metro and Allentown-Bethlehem-Easton metro each increased 7.1% and 4.5% from a year ago, according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, and values are expected to grow 0.3% and remain flat, respectively, in the next year. In light of these expectations, we believe the real estate values could continue to increase at these levels with the declining rate environment. Management will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.
Previous wording
For the nine months ended September 30, 2024, net income was $15.0 million, or $2.59 diluted earnings per share, compared to $17.7 million, or $3.11 diluted earnings per share, for the nine months ended September 30, 2023.
Current wording
For the three months ended March 31, 2025, net income was $6.0 million, or $1.03 diluted earnings per share, an 18% increase, compared to $5.1 million, or $0.88 diluted earnings per share, for the three months ended March 31, 2024.
Previous wording
As of September 30, 2024 and September 30, 2023, tangible common book value per share (non-GAAP) was $32.55 and $25.37, respectively. See reconciliation on page 37. The increase in tangible book value was due primarily to an increase in retained earnings from net income and the increase in unrealized loss in AFS securities. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios. See “Non-GAAP Financial Measures” located below within this management’s discussion and analysis.
Current wording
As of March 31, 2025 and March 31, 2024, tangible common book value per share (non-GAAP) was $33.16 and $29.80(1), respectively. The increase in tangible book value was due primarily to an increase in retained earnings from net income. These non-GAAP measures should be reviewed in connection with the reconciliation of these non-GAAP ratios.
Previous wording
The efficiency ratio is non-interest expenses as a percentage of FTE net interest income plus non-interest income. The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP:
Current wording
The efficiency ratio is non-interest expenses as a percentage of FTE net interest income plus non-interest income less gain/(loss) on sales of securities. The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP:
Previous wording
Net income for the quarter ended September 30, 2024 was $5.0 million, or $0.86 diluted earnings per share, compared to $5.3 million, or $0.93 diluted earnings per share, for the quarter ended September 30, 2023. The $0.3 million decline in net income resulted primarily from the $1.0 million increase in non-interest expenses coupled with a $0.4 million increase in the provision for credit losses on unfunded loan commitments and $0.2 million increase in the provision for credit losses on loans. This was partially offset by a $0.8 million increase in net interest income and a $0.7 million increase in non-interest income. For the nine months ended September 30, 2024, net income was $15.0 million, or $2.59 diluted earnings per share, compared to $17.7 million, or $3.11 diluted earnings per share, for the nine months ended September 30, 2023. The $2.7 million, or 15%, decline in net income stemmed from the $2.0 million higher non-interest expenses and $1.6 million reduction in net interest income partially offset by the increase of $0.8 million in non-interest income.
Current wording
Net income for the quarter ended March 31, 2025 was $6.0 million, or $1.03 diluted earnings per share, compared to $5.1 million, or $0.88 diluted earnings per share, for the quarter ended March 31, 2024. The $0.9 million, or 18%, increase in net income resulted primarily from a $2.1 million increase in net interest income coupled with a $0.4 million increase in non-interest income. This was partially offset by a $0.9 million increase in non-interest expense, a $0.4 million increase in the provision for income tax, and a $0.3 million increase in the provision for credit losses on loans.
Previous wording
Return on average assets (ROA) was 0.79% and 0.88% for the third quarters of 2024 and 2023, respectively, and 0.81% and 0.99% for the nine months ended September 30, 2024 and 2023, respectively. During the same time periods, return on average shareholders’ equity (ROE) was 9.89% and 11.96%, respectively, and 10.34% and 13.64%, respectively. The decreases in ROA and ROE were primarily the result of the decline in net income as average assets and equity increased during the third quarter of 2024 and year-to-date 2024, compared to the same periods of 2023. Pre-provision net revenue to average assets (non-GAAP) was 1.05% and 1.02% for the three months ended September 30, 2024 and 2023, respectively, and 1.00% and 1.19% for the nine months ended September 30, 2024 and 2023, respectively. The increase quarter-over-quarter was due to an increase in pre-provision net revenue in the third quarter of 2024. The year-over-year decrease is due to a decline in income before taxes.
Current wording
Return on average assets (ROA) was 0.93% and 0.83% for the first quarters of 2025 and 2024, respectively. During the same time periods, return on average shareholders’ equity (ROE) was 11.66% and 10.71%, respectively. The increases in ROA and ROE were primarily the result of an increase in net income during the first quarter of 2025, compared to the same period of 2024. Pre-provision net revenue to average assets (non-GAAP) was 1.16% and 0.96% for the three months ended March 31, 2025 and 2024, respectively. The increase quarter-over-quarter was due to an increase in pre-provision net revenue in the first quarter of 2025.
Previous wording
Net interest income was $15.4 million for the third quarter of 2024, a 5% increase over the $14.6 million earned for the third quarter of 2023. The $0.8 million increase in net interest income resulted from the increase of $3.6 million in interest income primarily due to a $71.0 million increase in the average balance of interest-earning assets and a 50 basis point increase in fully-taxable equivalent ("FTE") yield. The loan portfolio had the biggest impact, producing a $3.7 million increase in FTE interest income from $122.8 million in higher quarterly average balances and an increase of 49 basis points in FTE loan yield. Slightly offsetting the higher interest income, a $2.8 million increase in interest expense was due to a 55 basis point increase in the rates paid on interest-bearing deposits coupled with a $94.4 million quarter-over-quarter increase in average deposit balances.
Current wording
Net interest income was $17.0 million for the first quarter of 2025, a 14% increase over the $14.9 million earned for the first quarter of 2024. The $2.1 million increase in net interest income resulted from a $2.7 million increase in interest income primarily due to a $148.0 million increase in the average balance of interest-earning assets and a 21 basis point increase in fully-taxable equivalent ("FTE") yield. The loan portfolio had the most significant impact, producing a $2.5 million increase in FTE interest income from $116.4 million in higher quarterly average balances and an increase of 26 basis points in FTE loan yield. Partially offsetting the higher interest income, was a $0.6 million increase in interest expense due to a $124.3 million quarter-over-quarter increase in average interest-bearing liability balances. The increase was due to growth of $179.3 million in average interest-bearing deposit balances and a 6 basis point increase in the rates paid on interest-bearing deposits. This was partially offset by a decrease in interest expense on borrowings due to $53.9 million less in average short-term borrowings.
Previous wording
The overall cost of interest-bearing liabilities was 2.70% for the third quarter of 2024, an increase of 53 basis points from the 2.17% for the third quarter of 2023. The cost of funds increased 45 basis points to 2.08% for the third quarter of 2024 from 1.63% for the third quarter of 2023. The FTE yield on interest-earning assets was 4.68% for the third quarter of 2024, an increase of 50 basis points from the 4.18% for the third quarter of 2023. The Company’s FTE (non-GAAP measurement) net interest spread was 1.98% for the third quarter of 2024, a decrease of 3 basis points from the 2.01% recorded for the third quarter of 2023. FTE net interest margin increased to 2.70% for the three months ended September 30, 2024 from 2.63% for the same 2023 period due to allocation of better performing interest earning assets, which led to a 7 basis point margin improvement. In the third quarter of 2024, management continued to re-invest cash flow into more effective interest earning assets, such as the commercial loan portfolio. As a result, the Company experienced an increase in FTE adjusted net interest income of $0.9 million from $15.3 million to $16.2 million, or 6%, for the three months ended September 30, 2023 and 2024, respectively.
Current wording
The FTE yield on interest-earning assets was 4.73% for the first quarter of 2025, an increase of 21 basis points from the 4.52% for the first quarter of 2024. The overall cost of interest-bearing liabilities was 2.49% for the first quarter of 2025, a decrease of 2 basis points from the 2.51% for the first quarter of 2024. The cost of funds remained flat at 1.93% for both the first quarters of 2025 and 2024. The Company’s FTE (non-GAAP measurement) net interest spread was 2.24% for the first quarter of 2025, an increase of 23 basis points from the 2.01% recorded for the first quarter of 2024. FTE net interest margin increased to 2.89% for the three months ended March 31, 2025 from 2.69% for the same period of 2024 due to the increase in the loan and lease portfolio coupled with the continued re-investment of cash flow into more effective interest-earning assets.
Previous wording
For the remainder of 2024, the Company currently expects to operate in a moderately declining interest rate environment that is expected to continue into the fourth quarter and into fiscal year 2025. Management is primarily reliant on the Federal Open Market Committee's statements and forecast. For the nine months ended September 30, 2024 compared to September 30, 2023, the Company’s net interest income performance has been reduced due to asset yields being outpaced by higher cost of funds, compressing net interest spread. For the three months ended September 30, 2024 compared to September 30, 2023, the Company experienced an increase in net interest income due to redeployment of assets into more effective interest earning assets, partially offset by the continued increase in cost of funds. In September 2024, the FOMC decreased the federal funds rate by 50 basis points, which did not have much of an impact on improving net interest margin as of quarter end. In November 2024, the FOMC decreased the fed funds rate another 25 basis points. Consensus economic forecasts are expecting small declines between 25 to 50 basis points through the end of 2024, with at least another 100 basis points during 2025. The Company does not expect to see improvement in net interest margin in the immediate effect, as rates on interest bearing deposits will take time to match the decreasing rate environment. For the remainder of 2024 and into fiscal year 2025, the Company currently maintains a loan pipeline which is expected to grow the loan portfolio funded by utilizing excess cash holdings and will plan to borrow in the event cash is depleted and there is not enough deposit growth to fund loan growth. The focus remains to manage margin compression by restructuring the balance sheet, being proactive with loan pricing and managing deposit costs to maintain a reasonable spread.
Current wording
For the remainder of 2025, the Company currently expects to operate in a moderately declining interest rate environment. Management is primarily reliant on the Federal Open Market Committee's (FOMC) statements and forecast. For the three months ended March 31, 2025, the FOMC did not adjust interest rates based on the uncertainty about inflation and the effects of newly introduced tariffs on the economy. The Blue Chip Financial Forecasts economic consensus expects between 50 to 75 basis points in rate cuts during 2025. For 2025, the Company currently maintains a loan pipeline which is expected to grow the loan portfolio funded by utilizing excess cash holdings and will plan to borrow in the event cash is depleted and there is not enough deposit growth to fund loan growth. The focus remains on enhancing margin by reallocating cash flow to focus growth on specific assets, being proactive with loan pricing and managing deposit costs to maintain a reasonable spread.
Previous wording
The table that follows sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated. Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for September 30, 2024 and 2023 to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See “Non-GAAP Financial Measures” within this management’s discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets. Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. Home equity lines of credit (HELOC) are included in the residential real estate category since they are secured by real estate. Net deferred loan cost amortization of $0.2 million and $0.3 million during the third quarters of 2024 and 2023, respectively, and $0.7 million and $0.7 million for the nine months ended September 30, 2024 and 2023, respectively, are included in interest income from loans. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $0.3 million and $0.5 million are included in interest income from loans and $1 thousand and $7 thousand reduced interest expense on deposits and borrowings for the three months ended September 30, 2024 and 2023. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $1.2 million and $2.0 million are included in interest income from loans and $6 thousand and $27 thousand reduced interest expense on deposits and borrowings for the nine months ended September 30, 2024 and 2023. Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans.
Current wording
The table below sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated. Within the table, interest income was FTE adjusted, using the corporate federal tax rate of 21% for March 31, 2025 and 2024 to recognize the income from tax-exempt interest-earning assets as if the interest was taxable. See “Non-GAAP Financial Measures” within this management’s discussion and analysis for the FTE adjustments. This treatment allows a uniform comparison among yields on interest-earning assets. Loans include loans held-for-sale (HFS) and non-accrual loans but exclude the allowance for credit losses. Home equity lines of credit (HELOC) are included in the residential real estate category since they are secured by real estate. Net deferred loan cost amortization of $0.2 million and $0.2 million during the first quarter of 2025 and 2024, respectively, are included in interest income from loans. Merchants Bank of Bangor and Landmark Community Bank loan fair value purchase accounting adjustments of $0.4 million and $0.5 million are included in interest income from loans and less than $1 thousand and $1 thousand reduced interest expense on deposits and borrowings for the three months ended March 31, 2025 and 2024. Average balances are based on amortized cost and do not reflect net unrealized gains or losses. Residual values for direct finance leases are included in the average balances for consumer loans.
Previous wording
The provision for credit losses represents the necessary amount to charge against current earnings, the purpose of which is to adjust the allowance for credit losses to a level that represents management’s best estimate of expected credit losses in the Company’s loan portfolio. Loans determined to be uncollectible are charged off against the allowance. The required amount of the provision for credit losses, based upon the adequate level of the allowance, is subject to the ongoing analysis of the loan portfolio. The Company’s Special Assets Committee meets periodically to review problem loans. The committee is comprised of management, including credit administration officers, loan officers, loan workout officers and collection personnel.
Current wording
The provision for credit losses represents the necessary amount to charge against current earnings, the purpose of which is to increase the allowance for credit losses to a level that represents management’s best estimate of expected credit losses in the Company’s loan portfolio. Loans determined to be uncollectible are charged off against the allowance. The required amount of the provision for credit losses, based upon the adequate level of the allowance, is subject to the ongoing analysis of the loan portfolio. The Company’s Special Assets Committee meets periodically to review problem loans. The committee is comprised of management, including credit administration officers, loan officers, loan workout officers and collection personnel.
Previous wording
The provision for credit losses derives from the reserve required from the allowance for credit losses calculation. The Company continued provisioning for nine months ended September 30, 2024 to maintain an allowance level that management deemed adequate.
Current wording
The provision for credit losses derives from the reserve required from the allowance for credit losses calculation. The Company continued provisioning for three months ended March 31, 2025 to maintain an allowance level that management deemed adequate.
Previous wording
The provision for income taxes decreased $0.2 million during the nine months ended September 30, 2024 compared to the same period in 2023 primarily due to lower income before taxes. The Company's effective tax rate was 13.1% at September 30, 2024 compared to 11.9% at September 30, 2023. The difference between the effective rate and the enacted statutory corporate rate of 21% is due mostly to the effect of tax-exempt income in relation to the level of pre-tax income. The increase in the effective tax rate was primarily due to less in tax credits during 2024.
Current wording
The provision for income taxes increased $0.4 million during the three months ended March 31, 2025 compared to the same period in 2024 primarily due to a $1.3 million increase in income before taxes and $0.1 million less in tax credits. The Company's effective tax rate was 15.4% at March 31, 2025 compared to 12.1% at March 31, 2024. The difference between the effective rate and the enacted statutory corporate rate of 21% is due mostly to the effect of tax-exempt income in relation to the level of pre-tax income.
Previous wording
The Company’s total assets had a balance of $2.6 billion as of September 30, 2024, an increase of $0.1 billion, from $2.5 billion as of December 31, 2023. The increase primarily resulted from $107.9 million in growth in the loans and leases portfolio during the nine months ended September 30, 2024. Cash and cash equivalents increased $8.2 million and the investment portfolio decreased by $8.5 million. The decline in the investment portfolio was primarily due to $16.7 million in paydowns partially offset by an $8.4 million increase in market value of available-for-sale securities. As of September 30, 2024, the market value of held-to-maturity securities also increased by $6.0 million compared to December 31, 2023, with $22.2 million in unrealized losses. During the same time period, total liabilities increased $95.0 million, or 4%. Deposit growth of $184.1 million was utilized to pay down $92.0 million in short-term borrowings and fund growth in the loan portfolio.
Current wording
The Company’s total assets had a balance of $2.7 billion as of March 31, 2025, an increase of $126.7 million from December 31, 2024. The increase resulted from $127.8 million in growth in cash and cash equivalents during the three months ended March 31, 2025. The loans and leases portfolio increased $16.3 million during the same period of 2025. Asset growth was offset by a decrease of $16.7 million in the investment portfolio. Deposit growth of $116.6 million was used to fund the loan portfolio with the remaining balances held in cash.
Previous wording
At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM). To date, management has not purchased any securities for trading purposes. Some of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them. The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions. Debt securities AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported separately within shareholders’ equity as a component of accumulated other comprehensive income (AOCI). Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the nine months ended September 30, 2024, AOCI increased by $8.0 million primarily due to the change in fair value of the Company's investment securities.
Current wording
At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM). To date, management has not purchased any securities for trading purposes. Some of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them. The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions. Debt securities designated as AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported within shareholders’ equity as a component of accumulated other comprehensive income (AOCI). Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity. For the three months ended March 31, 2025, AOCI improved by $3.6 million primarily due to the change in fair value of the Company's investment securities.
Previous wording
As of September 30, 2024, the carrying value of held-to-maturity securities was $225.4 million, net of $14.3 million in remaining transferred discount.
Current wording
As of March 31, 2025, the carrying value of held-to-maturity securities was $226.2 million, net of $13.4 million in remaining transferred discount.
Previous wording
During September 2023, the Company entered into a $100 million interest rate swap with a third-party financial institution to limit the risk to the investment portfolio of rising interest rates. The interest rate swap was designated as a fair value hedge and utilized a pay fixed interest rate swap to hedge the change in fair value attributable to the movement in the Secured Overnight Financing Rate ("SOFR"). The Company designated $50 million of the swap's notional balance as a hedge against the closed portfolio of 20-year mortgage-backed securities and $50 million as a hedge against the closed portfolio of tax-free municipal bonds. As of September 30, 2024, the Company recorded the fair value of the swap of $2.3 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $2.3 million increase to the carrying value of designated investment securities.
Current wording
During September 2023, the Company entered into a $100 million interest rate swap with a third-party financial institution to limit the risk to the investment portfolio of rising interest rates. The interest rate swap was designated as a fair value hedge and utilized a pay fixed interest rate swap to hedge the change in fair value attributable to the movement in the Secured Overnight Financing Rate ("SOFR"). The Company designated $50 million of the swap's notional balance as a hedge against the closed portfolio of 20-year mortgage-backed securities and $50 million as a hedge against the closed portfolio of tax-free municipal bonds. As of March 31, 2025, the Company recorded the fair value of the swap of $1.2 million in accrued interest payable and other liabilities on the consolidated balance sheet offset by a $1.2 million increase to the carrying value of designated investment securities.
Previous wording
As of September 30, 2024, the carrying value of investment securities amounted to $559.8 million, or 21% of total assets, compared to $568.3 million, or 23% of total assets, as of December 31, 2023. On September 30, 2024, 33% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).
Current wording
As of March 31, 2025, the carrying value of investment securities amounted to $541.0 million, or 20% of total assets, compared to $557.2 million, or 22% of total assets, as of December 31, 2024. On March 31, 2025, 34% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations. The mortgage-backed securities portfolio includes only pass-through bonds issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA).
Previous wording
The Company’s municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a carrying value of $189.2 million ($168.5 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a carrying value of $89.4 million ($97.5 million including the remaining net unrealized loss transferred on HTM securities). The overall credit ratings of these municipal bonds were as follows: 37% AAA, 61% AA, and 1% A. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of the credit loss reserve calculated was immaterial because of the underlying strong credit quality of the municipal portfolio.
Current wording
The Company’s municipal (obligations of states and political subdivisions) portfolio is comprised of tax-free municipal bonds with a carrying value of $176.8 million ($170.1 million including the remaining net unrealized loss transferred on HTM securities) and taxable municipal bonds with a carrying value of $83.1 million ($77.9 million including the remaining net unrealized loss transferred on HTM securities). The overall credit ratings of these municipal bonds were as follows: 36% AAA, 62% AA, and 1% A. For municipal securities HTM, the Company utilized a third-party model to analyze whether a credit loss reserve is needed for these bonds. The amount of the credit loss reserve calculated was immaterial because of the underlying strong credit quality of the municipal portfolio.
Previous wording
During the first nine months of 2024, the carrying value of total investments decreased $8.5 million, or 1%. The decline was primarily due to principal reductions totaling $17.5 million, partially offset by an increase in the unrealized loss position of $8.4 million in the AFS portfolio. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile, to the extent possible.
Current wording
During the first three months of 2025, the carrying value of total investments decreased $16.3 million, or 3%. The decline was primarily due to a sale of $17.5 million in available-for-sale securities and $5.2 million in paydowns partially offset by $4.6 million in purchases of securities. The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company. Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile, to the extent possible.
Previous wording
Investment securities were comprised of AFS and HTM securities as of September 30, 2024 and December 31, 2023. The AFS securities were recorded with a net unrealized loss of $43.2 million and a net unrealized loss of $51.6 million as of September 30, 2024 and December 31, 2023, respectively. Of the $8.4 million net increase; $5.5 million was attributable to mortgage-backed securities, $2.0 million was attributable to municipal securities, and $1.0 million was attributable to agency securities. The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company’s investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases.
Current wording
The AFS securities were recorded with a net unrealized loss of $48.9 million and a net unrealized loss of $52.8 million as of March 31, 2025 and December 31, 2024, respectively. Of the $3.9 million net improvement; $5.1 million was attributable to mortgage-backed securities and $0.5 million was attributable to agency securities. This improvement was offset by a $1.7 million decrease to municipal securities. The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve. Generally, the values of debt securities move in the opposite direction of the changes in interest rates. As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the values of debt securities tend to decline. Whether or not the value of the Company’s investment portfolio will change above or below its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio. Management does not consider the reduction in value attributable to changes in credit quality. Correspondingly, when interest rates decline, the market values of the Company’s debt securities portfolio could be subject to market value increases.
Previous wording
As of September 30, 2024, the Company had $294.5 million in public deposits, or 13% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of September 30, 2024, the balance of pledged securities required was $362.2 million, or 65% of total securities.
Current wording
As of March 31, 2025, the Company had $292.7 million in public deposits, or 12% of total deposits. Pennsylvania state law requires the Company to maintain pledged securities on public and trust deposits or otherwise obtain a FHLB letter of credit or FDIC insurance for these customers. The Company also pledges securities for derivative instruments and certain borrowed funds. As of March 31, 2025, the balance of pledged securities required was $335.9 million, or 62% of total securities.
Previous wording
Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the nine months ended September 30, 2024, the Company did not incur any credit losses on debt securities from its investment securities portfolio.
Current wording
Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security. The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio. Inputs provided by the third parties are reviewed and corroborated by management. Evaluations of the causes of the unrealized losses are performed to determine whether credit losses on debt securities exist. Considerations such as the Company’s intent and ability to hold the securities until or sell prior to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security has credit losses. If a decline in value is deemed to be a credit loss, a contra-asset is recorded on both HTM and AFS securities, limited by the amount that the fair value is less than the amortized cost basis. During the three months ended March 31, 2025, the Company did not incur any credit losses on debt securities from its investment securities portfolio.
Previous wording
Investment in Federal Home Loan Bank (FHLB) stock is required for membership in the organization and is carried at cost since there is no market value available. The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB of Pittsburgh. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of September 30, 2024 and December 31, 2023. The balance in FHLB stock was $3.9 million and $3.8 million as of September 30, 2024 and December 31, 2023, respectively. The dividends received from the FHLB totaled $227 thousand and $229 thousand for the nine months ended September 30, 2024 and 2023, respectively.
Current wording
Investment in Federal Home Loan Bank (FHLB) stock is required for membership in the organization and is carried at cost since there is no market value available. The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB of Pittsburgh. Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level. In addition, the Company earns a return or dividend based on the amount invested. The balance in FHLB stock was $3.9 million and $3.9 million as of March 31, 2025 and December 31, 2024, respectively. The dividends received from the FHLB totaled $77 thousand and $73 thousand for the three months ended March 31, 2025 and 2024, respectively. Atlantic Community Bankers Bank (ACBB) stock totaled $82 thousand as of March 31, 2025 and December 31, 2024.
Previous wording
As of September 30, 2024 and December 31, 2023, loans HFS consisted of residential mortgages with carrying amounts of $1.8 million and $1.5 million, respectively, which approximated their fair values. During the nine months ended September 30, 2024, residential mortgage loans with principal balances of $44.7 million were sold into the secondary market and the Company recognized net gains of $0.8 million, compared to $37.9 million and $0.7 million, respectively, during the nine months ended September 30, 2023.
Current wording
As of March 31, 2025 and December 31, 2024, loans HFS consisted of residential mortgages with carrying amounts of $2.0 million and $2.1 million, respectively, which approximated their fair values. During the three months ended March 31, 2025, residential mortgage loans with principal balances of $12.5 million were sold into the secondary market and the Company recognized net gains of $0.2 million, compared to $10.8 million and $0.2 million, respectively, during the three months ended March 31, 2024.
Previous wording
The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships. At September 30, 2024 and December 31, 2023, the servicing portfolio balance of sold residential mortgage loans was $490.9 million and $477.7 million, respectively, with mortgage servicing rights of $1.4 million and $1.5 million for the same periods, respectively.
Current wording
The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market. MSRs are retained so that the Company can foster relationships. At March 31, 2025 and December 31, 2024, the servicing portfolio balance of sold residential mortgage loans was $498.0 million and $495.4 million, respectively, with mortgage servicing rights of $1.3 million and $1.3 million for the same periods, respectively. Additionally, during the first quarter of 2025, the Company sold a commercial loan with a principal balance of $1.3 million and recognized a net gain of $0.5 million.
Previous wording
As of September 30, 2024, the Company had gross loans and leases totaling $1.8 billion, an increase of $108.6 million, or 6%, compared to $1.7 billion at December 31, 2023.
Current wording
As of March 31, 2025, the Company had gross loans and leases totaling $1.8 billion, an increase of $17 million, or 1%, compared to $1.8 billion at December 31, 2024.
Previous wording
During the nine months ended September 30, 2024, the growth in the portfolio was primarily attributed to a $113.4 million increase in the commercial portfolio due to the origination of two commercial & industrial loans to two unrelated borrowers totaling $11 million; an origination to a single municipal borrower totaling $15 million; the origination of five commercial real estate non-owner occupied loans to five different borrowers totaling $39 million; the origination of two commercial real estate owner occupied loans to two different borrowers totaling $19 million; the origination of four commercial construction loans to three different borrowers totaling $10 million; and general portfolio growth. The Company also experienced a $18.1 million increase in the residential portfolio, the result of a higher percentage of adjustable-rate mortgages recorded as held-for-investment during this period. This growth was offset by the $22.9 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio.
Current wording
During the three months ended March 31, 2025, the growth in the portfolio was attributed to a $24.9 million increase in the commercial portfolio primarily due to the origination of two municipal loans to two unrelated borrowers totaling $8.3 million; an origination to a single commercial real estate owner occupied borrower totaling $9.4 million; and general portfolio growth. The Company also experienced a $2.2 million increase in the residential portfolio, which was offset by the $10.6 million reduction in the consumer portfolio attributed to a strategic reduction in the auto portfolio.
Previous wording
As of September 30, 2024, the commercial portfolio increased by $113 million, or 13%, to $1.0 billion compared to the December 31, 2023 balance of $0.9 billion. The increase was due to growth of $35 million in commercial and industrial loans and growth of $78 million in commercial real estate loans.
Current wording
As of March 31, 2025, the commercial portfolio increased by $24.9 million, or 2%, to $1.0 billion compared to the December 31, 2024 balance of $1.0 billion. The increase was due to growth of $10.0 million in commercial and industrial loans and growth of $14.9 million in commercial real estate loans.
Previous wording
For the nine months ended September 30, 2024, commercial and industrial (non-municipal) loans increased $16.0 million, or 10%, from $152.6 million at December 31, 2023 to $168.6 million at September 30, 2024, which was due to the origination of two commercial & industrial loans to two unrelated borrowers totaling $11 million along with originations and advances outpacing scheduled payments and curtailments.
Current wording
For the three months ended March 31, 2025, commercial and industrial (non-municipal) loans increased $1.7 million, or 1%, from $172.8 million at December 31, 2024 to $174.5 million at March 31, 2025, which was due to originations and advances outpacing scheduled payments and curtailments.
Previous wording
For the nine months ended September 30, 2024, owner occupied commercial real estate loans increased $17.9 million, or 6%, from $278.3 million on December 31, 2023, to $296.2 million at September 30, 2024, which was attributed to the origination of two commercial real estate owner occupied loans to two different borrowers totaling $19 million.
Current wording
For the three months ended March 31, 2025, owner occupied commercial real estate loans increased $11.5 million, or 4%, from $304.9 million on December 31, 2024, to $316.4 million at March 31, 2025, due to an origination to a single commercial real estate owner occupied borrower totaling $9.4 million and general portfolio growth.
Previous wording
The Company maintains a well-diversified non-owner occupied commercial real estate portfolio with no material concentration to any property type. The chart below describes the purpose for the types of exposure contained within the loan portfolio for non-owner-occupied commercial real estate loans at September 30, 2024:
Current wording
The Company maintains a well-diversified non-owner occupied commercial real estate portfolio with no material concentration to any property type. The chart below describes the purpose for the types of exposure contained within the loan portfolio for non-owner-occupied commercial real estate loans at March 31, 2025 compared to December 31, 2024:
Previous wording
In the table above, office space comprised $52.2 million and special purpose comprised $29.2 million in potential exposure, respectively. The office segment mainly has suburban medical and suburban professional third-party tenants. The special purpose segment included self-storage facilities, assisted living facilities, nursing homes, and parking garages.
Current wording
In the table above, office space comprised $52.1 million and special purpose comprised $40.5 million in outstanding amounts, respectively. The office segment mainly has suburban medical and suburban professional third-party tenants. The special purpose segment includes self-storage facilities, assisted living facilities, nursing homes, and parking garages.
Previous wording
Construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans. Management prefers lending to well-established developers with a proven track record and strong business and guaranteed with owners’ personal financial conditions. As of September 30, 2024, the commercial construction portfolio of $56.3 million consisted of $46.9 million, or 83%, of non-owner-occupied loans and $9.4 million, or 17%, of owner-occupied loans.
Current wording
Construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans. Management prefers lending to well-established developers with a proven track record and strong business and guaranteed with owners’ personal financial conditions. As of March 31, 2025, the commercial construction portfolio of $46.8 million consisted of $33.8 million, or 72%, of non-owner-occupied loans and $13.0 million, or 28%, of owner-occupied loans.
Previous wording
For the nine months ended September 30, 2024, commercial construction loans increased $16.5 million, or 41%, from $39.8 million on December 31, 2023 to $56.3 million at September 30, 2024. This increase was attributed to $14.1 million in commercial construction commitments originated during the year and $13.9 million in advances during the year on commercial construction loan availability booked prior to December 31, 2023. These advances were partially offset by $0.4 million of paydowns/payoffs and $11.1 million in projects that stabilized and were converted to owner and non-owner commercial real estate loans during the nine months ended September 30, 2024.
Current wording
For the three months ended March 31, 2025, commercial construction loans decreased $4.1 million, or 8%, from $50.9 million on December 31, 2024 to $46.8 million at March 31, 2025. This reduction was attributed to $21.8 million in projects that stabilized and were converted to owner and non-owner commercial real estate loans during the three months ended March 31, 2025. This reduction was partially offset by $0.7 million in commercial construction commitments originated during the quarter and $17.0 million in advances during the quarter on commercial construction loan availability booked prior to March 31, 2025.
Previous wording
As of September 30, 2024, the total consumer loan portfolio decreased by $22.9 million, or 8%, to $259.5 million compared to the December 31, 2023 balance of $282.4 million, primarily due to a management strategic determination to reduce the indirect auto portfolio totaling $28 million resulting from payoffs/paydowns with minimal originations. Offsetting the reduction in the indirect auto portfolio was growth of $5 million in the HELOC portfolio due to a sales campaign done during the year and growth of $7 million in the other consumer portfolio due to $6 million in personal loans purchased from Banker Healthcare Group (BHG) during the year along with general portfolio growth. For the remainder of 2024, the Company expects maturities of approximately $6.7 million in the dealer portfolio with minimal originations.
Current wording
As of March 31, 2025, the total consumer loan portfolio decreased by $10.6 million, or 4%, to $240.2 million compared to the December 31, 2024 balance of $250.8 million, primarily due to a management strategic determination to reduce the indirect auto portfolio totaling $12 million resulting from payoffs/paydowns with minimal originations. Offsetting the reduction in the indirect auto portfolio was growth of $0.9 million in the HELOC portfolio due to a sales campaign done during the quarter. For the remainder of 2025, the Company expects maturities of approximately $27.5 million in the dealer portfolio with minimal originations.
Previous wording
The residential loan portfolio consisted primarily of held-for-investment residential loans for primary residences, including approximately $393 million in fixed-rate and $97 million in adjustable-rate mortgages as of September 30, 2024.
Current wording
The residential loan portfolio consisted primarily of held-for-investment residential loans for primary residences, including $404 million in fixed-rate and $107 million in adjustable-rate mortgages as of March 31, 2025.
Previous wording
For the nine months ended September 30, 2024, the allowance increased $0.8 million, or 4%, to $19.6 million from $18.8 million on December 31, 2023. The increase in the allowance was based on the provisioning of $1.1 million partially offset by net charge-offs of $0.3 million.
Current wording
For the three months ended March 31, 2025, the allowance increased $0.3 million, or 2%, to $20.0 million from $19.7 million on December 31, 2024. The increase in the allowance was based on the provisioning of $0.5 million partially offset by net charge-offs of $0.1 million.
Previous wording
Management believes that the current balance in the allowance for credit losses is sufficient to meet the identified potential credit quality issues that may arise and other issues unidentified but inherent to the portfolio. Potential problem loans are those where there is known information that leads management to believe repayment of principal and/or interest is in jeopardy and the loans are currently neither on non-accrual status nor past due 90 days or more.
Current wording
Management believes that the current balance in the allowance for credit losses is adequate to meet the identified potential credit quality issues that may arise and other issues unidentified but inherent to the portfolio. Potential problem loans are those where there is known information that leads management to believe repayment of principal and/or interest is in jeopardy and the loans are currently neither on non-accrual status nor past due 90 days or more.
Showing the first 40 of 64 pairs. Open the source sections for the rest.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
three months ended March 31, 2025 and 2024