FIRST UNITED CORPMD
For the period ended Jun 30, 2024. Filed Aug 7, 2024.
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.
Jun 30, 2024 · Filed Aug 7, 2024
FUNC$45.92+0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-08.
0001558370-24-007330
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-07.
0001558370-24-011343
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 105 previous paragraphs and 110 current paragraphs.
71 unchanged; 30 reworded; 9 added; 4 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 40 previous and 44 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
The $0.5 million increase in quarterly net income year over year was primarily driven by a $1.1 million increase in net interest income, which was offset slightly by an increase of $0.8 million in provision expense. The increase in net interest income was primarily related to the $3.4 million increase in interest on loans due to new loans being booked at higher rates and the repricing of adjustable-rate loans. This increase was partially offset by the $2.0 million increase in interest paid on deposits due to continued competitive pricing pressures. An increase of $0.5 million in short-term borrowings related to the FRB’s Bank Term Funding Program (“BTFP”) was offset by the reduction in long-term borrowings related to the repayment of the $40.0 million Federal Home
Current report
Loan Bank (“FHLB”) advance in the first quarter of 2024. The year-over-year increase in provision for credit losses was primarily driven by increased charge-offs in the commercial and industrial portfolio related to one non-accrual credit where collateral was sold through a liquidation auction at depressed prices. The charge-off was partially offset by continued lower historical losses and improving qualitative factors related to the reduction of non-accrual balances. Comparing the second quarter of 2024 to the same period in 2023, other activity included a $0.3 million increase in wealth management income due to improving market conditions and growth of new relationships and a decrease in operating expenses of $0.1 million. The provision for income tax was up $0.2 million when comparing the two quarters due to increased income before tax.
Current report
Comparing the six months ended June 30, 2024 to the six months ended June 30, 2023, net interest income, on a non-GAAP, fully tax equivalent (“FTE”) basis, was stable. Interest income increased by $6.9 million. Average loan balances increased by $112.9 million and the overall yield increased by 61 basis points in correlation with the rising rate environment and new loans booked at higher rates as well as the repricing of adjustable-rate loans. Interest expense on deposits increased by $5.6 million, while the average deposit balances increased by $42.5 million, driven by increases of $77.9 million in money market balances and $27.4 million in retail time deposits, partially offset by decreases in savings balances of $50.1 million. Interest expense on short-term borrowings increased by $0.9 million due to the Bank’s utilization of the BTFP in January 2024. The increased interest expense resulted in an overall increase of 99 basis points on interest bearing liabilities. The net interest margin for the six months ended June 30, 2024 was 3.31% compared to 3.39% for the six months ended June 30, 2023.
Current report
Other operating income for the six months ended June 30, 2024 increased by $0.8 million when compared to the same period of 2023. This increase was primarily due to the $0.8 million increase in wealth management income due to improving market conditions, increased annuity sales and growth in new and existing customer relationships. Service charge and debit card income were both stable when comparing the six months of 2024 to the six months of 2023.
Current report
Operating expenses decreased by $0.1 million in the second quarter of 2024 when compared to the second quarter of 2023. The decrease was related to a $0.2 million decrease in equipment and occupancy expenses resulting from branch closures in late 2023 and a $0.2 million decrease in check fraud related expenses. These decreases were partially offset by a $0.4 million increase in salaries related to increased health insurance claims, higher salaries and benefits associated with normal merit increases effective April 1, 2024, and reduced loan origination costs due to lower loan production. Other increases in data processing and marketing expenses were offset by decreases in professional services, contract labor, telephone and other miscellaneous expenses.
Current report
For the six months ended June 30, 2024, non-interest expenses increased by $0.1 million when compared to the six months ended June 30, 2023. Increases in salaries and employee benefits of $0.2 million due to normal merit increases effective April 1, 2024, and increases in FDIC premiums, data processing, equipment and occupancy were offset by decreases in professional services, contract labor, investor relations and other miscellaneous expenses such as pension related expenses, check fraud and membership dues and licenses.
Current report
(1) The above table reflects the average rates earned or paid stated on an FTE basis assuming a 21% tax rate for 2024 and 2023. Non-GAAP interest income on a fully taxable equivalent for the three-month periods ended June 30, 2024 and 2023 was $58 and $225, respectively.
Current report
Comparing the six months ended June 30, 2024 to the six months ended June 30, 2023, net interest income, on a non-GAAP, FTE basis, was stable. Interest income increased by $6.9 million. Average loan balances increased by $112.9 million and the overall yield increased by 61 basis points in correlation with the rising rate environment and new loans booked at higher rates as well as the repricing of adjustable-rate loans. Interest expense on deposits increased by $5.6 million while the average deposit balances increased by $42.5 million, driven by increases of $77.9 million in money market balances and $27.4 million in retail time deposits, partially offset by decreases in savings balances of $50.1 million. Interest expense on short-term borrowings increased by $0.9 million due to the Bank’s utilization of the BTFP in January 2024. The increased interest expense resulted in an overall increase of 99 basis points on interest bearing liabilities. The net interest margin for the six months ended June 30, 2024 was 3.31% compared to 3.39% for the six months ended June 30, 2023.
Current report
Non-accrual loans totaled $9.4 million at June 30, 2024 compared to $4.0 million at December 31, 2023. The increase in non-accrual balances at June 30, 2024 was related to two commercial and industrial loan relationships totaling $12.1 million that were moved to non-accrual during the first quarter of 2024. The reduction in non-accrual balances during the second quarter of 2024 is related to a borrower’s decision to sell a piece of collateral and reduce outstanding balances by approximately $5.5 million and the charge-off of $1.1 million on another commercial and industrial credit.
Removed paragraphs (4)
Previous report
The $0.7 million decrease in net income year over year was primarily driven by a $0.7 million decrease in net interest income and a $0.4 million increase in provision for credit losses. Two large commercial relationships with combined loan balances of $12.1 million were moved to non-accrual status during the first quarter of 2024, which resulted in a reversal of $0.4 million in accrued interest income and fees during the quarter. Additionally, year-over-year interest expense increased at a slightly faster pace than year-over-year interest income. The provision for credit loss also increased year over year due to increased qualitative risk factors associated with the non-accrual loan balances. Management is actively managing these credits, which we anticipate will lead
Previous report
to normal collection procedures such as returning the credits to accrual or moving loans through the foreclosure process over the next year. Other activity when comparing the first quarter of 2024 to the same period in 2023 was a $0.4 million increase in wealth management income due to improving market conditions and growth of new relationships and an increase in operating expenses of $0.2 million. The provision for income tax expense was down $0.2 million when comparing the two quarters due to decreased net income before tax.
Previous report
Operating expenses increased by $0.2 million in the first quarter of 2024 when compared to the first quarter of 2023. The increase was largely driven by a $0.3 million increase in equipment and occupancy expense due to the accelerated depreciation expenses recognized in the first quarter of 2024 in conjunction with the branch closures in February 2024. This increase was partially offset by a $0.1 million decrease in salaries and employee benefits year over year due to unusually high health insurance premiums recognized in the first quarter of 2023, offset by higher salaries and benefits associated with normal merit increases effective April 1, 2023.
Previous report
Non-accrual loans totaled $16.0 million at March 31, 2024 compared to $4.0 million at December 31, 2023. The increase in non-accrual balances at March 31, 2024 was related to two commercial and industrial loan relationships that were classified as substandard at December 31, 2023 and moved to non-accrual during the first quarter. Management believes that these loans are marked appropriately, and our credit department is actively working with these borrowers on work-out plans.
Reworded paragraphs (30)
Previous wording
At March 31, 2024, the Corporation’s total assets were $1.9 billion, net loans were $1.4 billion, and deposits were $1.6 billion. Shareholders’ equity at March 31, 2024 was $165.5 million.
Current wording
At June 30, 2024, the Corporation’s total assets were $1.9 billion, net loans were $1.4 billion, and deposits were $1.5 billion. Shareholders’ equity at June 30, 2024 was $164.2 million.
Previous wording
The following table sets forth certain selected financial data for the three-month periods ended March 31, 2024 and 2023 and is qualified in its entirety by the detailed information and unaudited financial statements, including the notes thereto, included elsewhere in this quarterly report.
Current wording
The following table sets forth certain selected financial data for the six-month periods ended June 30, 2024 and 2023 and is qualified in its entirety by the detailed information and unaudited financial statements, including the notes thereto, included elsewhere in this quarterly report.
Previous wording
Consolidated net income was $3.7 million, inclusive of $0.4 million, net of tax, in accelerated depreciation expenses related to branch closures, for the first quarter of 2024. This compares to $4.4 million for the first quarter of 2023. Basic and diluted earnings per share were $0.56 for the first quarter of 2024 compared to basic earnings per share of $0.66 and diluted earnings per share of $0.65 for the first quarter of 2023.
Current wording
Consolidated net income was $4.9 million for the second quarter of 2024. This compares to $4.4 million for the second quarter of 2023. Consolidated net income for the first quarter of 2024 was $3.7 million, which was inclusive of $0.4 million, net of tax, in accelerated depreciation expense related to branch closures. Basic and diluted earnings per share were $0.75 for the second quarter of 2024 compared to $0.66 per share for the second quarter of 2023 and $0.56 per share for the first quarter of 2024.
Previous wording
Other operating income, including net gains/(losses), for the first quarter of 2024 increased by $0.5 million when compared to the same period of 2023. The growth was driven by an increase of $0.4 million in wealth management income due to improving market conditions and growth in new and existing customer relationships.
Current wording
Other operating income, including net gains, for the second quarter of 2024 increased by $0.3 million when compared to the same period of 2023. The growth was driven by an increase of $0.3 million in wealth management income due to improving market conditions, increased annuity sales and growth in new and existing customer relationships. Gains on sales of mortgages declined slightly when comparing the second quarter of 2024 to the same time period of 2023 primarily due to reduced activity in the elevated interest rate environment. Other operating income on service charges and debit card income remained stable.
Previous wording
Net interest income is our largest source of operating revenue. Net interest income is the difference between the interest that we earn on our interest-earning assets and the interest expense we incur on our interest-bearing liabilities. For analytical and discussion purposes, net interest income is adjusted to a fully tax equivalent (“FTE”) basis to facilitate performance comparisons between taxable and tax-exempt assets by increasing tax-exempt income by an amount equal to the federal income taxes that would have been paid if this income were taxable at the statutorily applicable rate. This is a non-GAAP disclosure and management believes it is not materially different than the corresponding GAAP disclosure.
Current wording
Net interest income is our largest source of operating revenue. Net interest income is the difference between the interest that we earn on our interest-earning assets and the interest expense we incur on our interest-bearing liabilities. For analytical and discussion purposes, net interest income is adjusted to an FTE basis to facilitate performance comparisons between taxable and tax-exempt assets by increasing tax-exempt income by an amount equal to the federal income taxes that would have been paid if this income were taxable at the statutorily applicable rate. This is a non-GAAP disclosure and management believes it is not materially different than the corresponding GAAP disclosure.
Previous wording
The tables below summarize net interest income for the three month periods ended March 31, 2024 and 2023.
Current wording
The tables below summarize net interest income for the six- and three-month periods ended June 30, 2024 and 2023.
Previous wording
The following tables set forth the average balances, net interest income and expense, and average yields and rates of our interest-earning assets and interest-bearing liabilities for the three-month periods ended March 31, 2024 and 2023:
Current wording
The following tables set forth the average balances, net interest income and expense, and average yields and rates of our interest-earning assets and interest-bearing liabilities for the six- and three-month periods ended June 30, 2024 and 2023:
Previous wording
Net interest income, on a non-GAAP, FTE basis, decreased by $0.9 million for the first quarter of 2024 when compared to the first quarter of 2023. This decrease was driven by an increase of $4.8 million in interest expense due to an increase of 133 basis points on interest paid on deposit accounts. The average balances decreased by $39.4 million when compared to the first quarter of 2023 due primarily to the increased deposit pricing pressures that began in the first quarter of 2023 as a result of the bank failures in March 2023 and liquidity fears in the market. Interest income increased by $3.9 million. Interest income on loans increased by $3.8 million due to the increase of 59 basis points in overall yield on the loan portfolio, as new loans were booked at higher rates and adjustable-rate loans repriced in correlation to the rising rate environment and an increase in average balances of $128.3 million. Investment income decreased by $0.4 million due to a decrease of $64.4 million in average balances related to the balance sheet restructuring of our investment portfolio in the fourth quarter of 2023 and the maturity of $30.0 million of U.S. Treasury bonds. The net interest margin for the three months ended March 31, 2024 was 3.12% compared to 3.53% for the three months ended March 31, 2023. Excluding the reversal of $0.4 million of interest and fees on loans related to the movement of $12.1 million of loans to non-accrual, the net interest margin would have been 3.21%.
Current wording
Net interest income, on a non-GAAP, FTE basis, increased by $0.9 million for the second quarter of 2024 when compared to the second quarter of 2023. This increase was driven by a $3.0 million increase in interest income. Interest income on loans increased by $3.4 million due to the increase in average balances of $97.6 million and a 64 basis point increase in the overall yield on the loan portfolio as new loans were booked at higher rates as well as adjustable-rate loans repricing in correlation to the rising rate environment. Investment income decreased by $0.5 million due to a decrease of $86.8 million in average balances related to the balance sheet restructuring of our investment portfolio in the fourth quarter of 2023 and the maturity of $37.5 million in U.S. Treasury bonds in the first four months of 2024. The overall yield on the investment portfolio increased by 12 basis points primarily driven by the increased rate on the trust preferred portfolio and the maturity and sale of lower rate investments. Interest expense increased by $2.1 million year over year due to an increase of 70 basis points on interest paid on deposit accounts. The average deposit balances increased by $24.5 million when compared to the second quarter of 2023 due primarily to the increase of $96.4 million in money market account, which was partially offset by decreases of $43.2 million and $36.7 million in average savings deposits and average time deposits, respectively.
Previous wording
The following table sets forth an analysis of volume and rate changes in interest income and interest expense for our average interest-earning assets and average interest-bearing liabilities for the three-month periods ended March 31, 2024 and 2023:
Current wording
The following table sets forth an analysis of volume and rate changes in interest income and interest expense for our average interest-earning assets and average interest-bearing liabilities for the six- and three-month periods ended June 30, 2024 and 2023:
Previous wording
Specific allocations have been made for loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance, and the qualitative factors affecting the estimated allowance for credit losses (“ACL”) have been adjusted based on the current economic environment and the characteristics of the loan portfolio. Net provision expense was $0.9 million for the three month period ended March 31, 2024 compared to net provision expense of $0.5 million and three month period ended March 31, 2023. The increased provision expense recorded in the 2024 period was primarily related to increases in qualitative risk factors of our commercial and industrial portfolio, as two large relationships moved to non-accrual status during the quarter.
Current wording
Specific allocations have been made for loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance, and the qualitative factors affecting the estimated allowance for credit losses (“ACL”) have been adjusted based on the current economic environment and the characteristics of the loan portfolio. For the first six months of 2024 and 2023, net provision expense was $2.1 million and $0.9 million, respectively. For the second quarters of 2024 and 2023, net provision expense was $1.2 million and $0.4 million, respectively. The increased provision expense recorded in 2024 was primarily related to $1.1 million in charge-offs related to one non-accrual commercial and industrial loan relationship and was partially offset by improving qualitative risk factors of our loan portfolio.
Previous wording
The composition of other operating income for the three-month periods ended March 31, 2024 and 2023 is illustrated in the following table:
Current wording
The composition of other operating income for the six- and three-month periods ended June 30, 2024 and 2023 is illustrated in the following table:
Previous wording
The composition of other operating expenses for the three month periods ended March 31, 2024 and 2023 is illustrated in the following table:
Current wording
The composition of other operating expenses for the six- and three-month periods ended June 30, 2024 and 2023 is illustrated in the following table:
Previous wording
The effective income tax rates as a percentage of income for the three-month periods ended March 31, 2024 and March 31, 2023 were 23.9% and 23.6%, respectively.
Current wording
The effective income tax rates as a percentage of income for the six month periods ended June 30, 2024 and June 30, 2023 were 24.3% and 24.0%, respectively.
Previous wording
Total assets at March 31, 2024 were $1.9 billion, representing a $7.1 million increase since December 31, 2023. During the first quarter of 2024, cash and interest-bearing deposits in other banks increased by $37.2 million. The investment portfolio decreased by $32.8 million due to the maturities of $30.0 million of U.S. Treasury bonds during the quarter and normal principal amortization. Gross loans increased by $5.7 million. Other assets, including deferred taxes, premises and equipment, and accrued interest receivable, remained stable.
Current wording
Total assets at June 30, 2024 were $1.9 billion, representing a $37.3 million decrease since December 31, 2023. During the first six months of 2024, cash and interest-bearing deposits in other banks decreased by $4.7 million. The investment portfolio decreased by $44.3 million due to the maturities of $37.5 million of U.S. Treasury bonds during the year and normal principal amortization of our mortgage-backed securities (“MBS”) portfolio. Gross loans increased by $16.3 million and other real estate owned (“OREO”) decreased by $1.5 million due to sales of OREO properties. Other assets, including deferred taxes, premises and equipment, and accrued interest receivable, decreased by $2.7 million.
Previous wording
Total liabilities at March 31, 2024 were $1.7 billion, representing a $3.5 million increase since December 31, 2023. Total deposits increased by $12.5 million when compared to December 31, 2023. The increase in deposits was primarily attributable to the shift of $10.0 million in overnight investment sweep balances to the IntraFi Cash Service (“ICS”) product, as a result of management’s strategy to release pledging of investment securities for municipalities to increase available liquidity. Short term borrowings increased by $34.1 million since December 31, 2023 due primarily to the Bank’s utilization of the FRB’s Bank Term Funding Program (“BTFP”) to obtain $40.0 million in borrowings during January 2024 at a rate of 4.87% with a one-year maturity. There are no prepayment penalties associated with early payments on the BTFP borrowings. Long-term borrowings decreased by $40.0 million in the first quarter of 2024 due to the repayment of $40.0 million in Federal Home Loan Bank (“FHLB”) borrowings that matured.
Current wording
Total liabilities at June 30, 2024 were $1.7 billion, representing a $39.6 million decrease since December 31, 2023. Total deposits decreased by $13.9 million when compared to December 31, 2023. The decrease in deposits was attributable to decreases in savings deposits of $11.2 million, and retail time deposits of $22.1 million, as well as the repayment of $15.0 million in brokered certificates of deposits, partially offset by increases in demand deposits of $22.2 million and money markets of $16.0 million. Short-term borrowings increased by $17.1 million since December 31, 2023 due to the Bank’s utilization of the BTFP to obtain $40.0 million in borrowings during January 2024 at a rate of 4.87% with a one-year maturity. The increase from the BTFP funding was partially offset by the shift of approximately $22.0 million in overnight investment sweep balances to the ICS product as a result of management’s strategy to release pledging of investment securities for municipalities to increase available liquidity. Long-term borrowings decreased by $40.0 million in the first six month of 2024 when compared to December 31, 2023 due to the repayment of $40.0 million in FHLB borrowings at its maturity in the first quarter of 2024.
Previous wording
Outstanding loans of $1.4 billion at March 31, 2024 reflected growth of $5.7 million for the first quarter of 2024. Since December 31, 2023, commercial real estate loans decreased by $0.9 million and acquisition and development loans increased by $6.4 million. Commercial and industrial loans increased by $0.1 million. Residential mortgage loans increased by $2.1 million, offset by a decline of $2.1 million in the consumer loan portfolio related to new production offset by monthly amortization.
Current wording
Outstanding loans of $1.4 billion at June 30, 2024 reflected growth of $16.3 million for the first six months of 2024. Since December 31, 2023, commercial real estate loans increased by $7.3 million and acquisition and development loans increased by $11.2 million. Commercial and industrial loans decreased by $8.9 million, driven by the repayment of $5.5 million of a non-accrual loan late in second quarter and the $1.1 million charge-off of a non-accrual equipment loan. Residential mortgage loans increased by $11.2 million and consumer loans decreased by $4.5 million.
Previous wording
New commercial loan production for the three months ended March 31, 2024 was approximately $28.3 million. The pipeline of commercial loans as of March 31, 2024 was $30.9 million. At March 31, 2024, unfunded, committed commercial construction loans totaled approximately $8.2 million. Commercial amortization and payoffs were approximately $35.5 million through March 31, 2024, due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.
Current wording
New commercial loan production for the three months ended June 30, 2024 was approximately $36.9 million. The $64.9 million in the pipeline of commercial loans was robust as of June 30, 2024. At June 30, 2024, unfunded, committed commercial construction loans totaled approximately $12.6 million. Commercial amortization and payoffs were approximately $51.6 million through June 30, 2024, due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.
Previous wording
New consumer mortgage loan production for the first quarter of 2024 was approximately $11.2 million, with most of this production comprised of in-house mortgages. The pipeline of in-house, portfolio loans as of March 31, 2024 was $9.8 million. The residential mortgage production level declined in the first quarter of 2024 due to the higher interest rates and seasonality of this line of business. Unfunded commitments related to residential construction loans totaled $13.9 million at March 31, 2024. Management chose to shift activity to the secondary market in the first quarter of 2024 to preserve liquidity.
Current wording
New consumer mortgage loan production for the second quarter of 2024 was approximately $19.1 million, with most of this production comprised of portfolio mortgages. The pipeline of in-house, portfolio loans as of June 30, 2024 was $19.4 million. The residential mortgage production level increased in the second quarter of 2024 due to the seasonality of this line of business, particularly construction lending. Unfunded commitments related to residential construction loans totaled $13.5 million at June 30, 2024.
Previous wording
The ACL represents an amount which, in management’s judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased by a provision or decreased by a recovery for credit losses, which is recorded as a current period operating expense.
Current wording
The ACL represents an amount which, in management’s judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased by a provision or decreased by a provision for credit losses, which is recorded as a current period operating expense.
Previous wording
The following table presents a summary of the activity in the ACL for the three-month periods ended March 31:
Current wording
The following table presents a summary of the activity in the ACL for the six-month periods ended June 30, 2024 and 2023:
Previous wording
At March 31, 2024, the total amortized cost basis of the available-for-sale investment portfolio was $116.8 million, compared to a fair value of $95.6 million. Unrealized gains and losses on available-for-sale securities are reflected in accumulated other comprehensive loss, a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $183.2 million, compared to a fair value of $152.2 million.
Current wording
At June 30, 2024, the total amortized cost basis of the available-for-sale investment portfolio was $115.8 million compared to a fair value of $93.0 million. Unrealized gains and losses on available-for-sale securities are reflected in accumulated other comprehensive loss, a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $174.2 million compared to a fair value of $143.0 million.
Previous wording
Total fair value of investment securities available for sale decreased by $1.6 million since December 31, 2023 due primarily to principal paydowns of the portfolio. At March 31, 2024, the securities classified as available-for-sale included a net unrealized loss of $21.2 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.
Current wording
Total fair value of investment securities available for sale decreased by $4.2 million since December 31, 2023 due primarily to principal paydowns of the portfolio. At June 30, 2024, the securities classified as available-for-sale included a net unrealized loss of $22.8 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.
Previous wording
Total amortized cost of securities held to maturity decreased by $31.2 million since December 31, 2023 due primarily to the maturity of $30.0 million in U.S. Treasury bonds and $1.2 million in other principal paydowns of the portfolio. Proceeds from the maturities and principal paydowns were reinvested into cash at the Federal Reserve Bank of Richmond in anticipation of the $40.0 million maturing FHLB advance.
Current wording
Total amortized cost of securities held to maturity decreased by $40.1 million since December 31, 2023 due primarily to the maturity of $37.5 million in U.S. Treasury bonds and $2.6 million in other principal paydowns of the portfolio. Proceeds from the maturities and principal paydowns were reinvested into cash at the Federal Reserve Bank of Richmond in anticipation of the $40.0 million maturing FHLB advance.
Previous wording
Approximately $80.7 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $17.5 million at March 31, 2024. The remaining $14.9 million of the securities available-for-sale represents the entire collateralized debt obligation portfolio, which was valued using significant unobservable inputs (Level 3 assets). The $3.8 million in net unrealized losses associated with this portfolio relates to nine pooled trust preferred securities that comprise the collateralized debt obligation portfolio.
Current wording
Approximately $79.0 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $18.2 million at June 30, 2024. The remaining $14.0 million of the securities available-for-sale represents the entire collateralized debt obligation portfolio, which was valued using significant unobservable inputs (Level 3 assets). The $4.7 million in net unrealized losses associated with this portfolio relates to nine pooled trust preferred securities that comprise the collateralized debt obligation portfolio.
Previous wording
Total deposits at March 31, 2024 increased by $12.5 million when compared to December 31, 2023. During the quarter, non-interest-bearing deposits decreased by $4.9 million. Interest-bearing demand deposits increased by $26.9 million, primarily related to the shift of $10.0 million in overnight investment sweep balances into the ICS product to maintain insurance through the Federal Deposit Insurance Corporation due to management’s strategy to release pledging of investment securities for municipalities to increase available liquidity. Money market accounts increased by $7.3 million due primarily to the expansion of current relationships and new relationships during the quarter. Traditional savings accounts decreased by $2.4 million and time deposits decreased by $14.4 million. The decrease in time deposits was primarily due to the maturing of a nine-month CD product that was offered by the Bank in 2023 at higher rates. The Bank has worked closely with customers as these CDs mature to transition them to other deposit and wealth management products offered by the Bank.
Current wording
Total deposits at June 30, 2024 decreased by $13.9 million when compared to December 31, 2023. Non-interest-bearing deposits decreased by $3.7 million. Interest-bearing demand deposits increased by $22.2 million, primarily related to the shift of approximately $22.0 million in overnight investment sweep balances into the ICS product due to management’s strategy to release pledging of investment securities for municipalities to increase available liquidity. Money market accounts increased by $16.0 million due primarily to the expansion of current relationships and new relationships during the first six months. Traditional savings accounts decreased by $11.3 million and time deposits decreased by $37.1 million. The decrease in time deposits was due to a decrease of $22.1 million in retail Certificates of Deposit (“CDs”) related to maturities of a nine-month special CD promotion in 2023 and the maturity and repayment of a $15.0 million brokered CD. The Bank has worked closely with customers as these CDs mature to transition them to other deposit and wealth management products offered by the Bank.
Previous wording
Short-term borrowings increased by $34.1 million as the Bank borrowed $40.0 million from the BTFP in January 2024, which was partially offset by a decrease of $5.9 million in other short-term borrowings related to the shift of $10.0 million from a large municipality to the ICS product. Long-term borrowings decreased by $40.0 million as a $40.0 million FHLB advance matured in March 2024 and was fully repaid.
Current wording
Short-term borrowings increased by $17.1 million as the Bank borrowed $40.0 million from the BTFP in January 2024, partially offset by a decrease of approximately $22.0 million in other short-term borrowings due primarily to management’s strategic decision to shift municipal customers into the ICS deposit product. Long-term borrowings decreased by $40.0 million as a $40.0 million FHLB advance matured in March 2024 and was fully repaid utilizing proceeds from lower yielding investment maturities.
Previous wording
In addition to operational requirements, the Bank is subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators. These regulations are used to evaluate capital adequacy and require an analysis of an institution’s asset risk profile and off-balance sheet exposures, such as unused loan commitments and stand-by letters of credit. Based on capital ratios at March 31, 2024, the Bank was considered to be well-capitalized.
Current wording
In addition to operational requirements, the Bank is subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators. These regulations are used to evaluate capital adequacy and require an analysis of an institution’s asset risk profile and off-balance sheet exposures, such as unused loan commitments and stand-by letters of credit.
Previous wording
The Corporation enters into contractual obligations in the normal course of business. Among these obligations are FHLB advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices and for data processing and telecommunications equipment. Comparing March 31, 2024 to December 31, 2023, short-term borrowings increased by $34.1 million as the Bank borrowed $40.0 million from the BTFP in January 2024, which was partially offset by a decrease of $4.9 million in other short-term borrowings due to fluctuations in municipal customer balances in overnight investment sweep products.
Current wording
The Corporation enters into contractual obligations in the normal course of business. Among these obligations are FHLB advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices and for data processing and telecommunications equipment. Comparing June 30, 2024 to December 31, 2023, short-term borrowings increased by $17.1 million as the Bank borrowed $40.0 million from the BTFP in January 2024, which was partially offset by a decrease of $22.9 million in other short-term borrowings due primarily to the shift of approximately $22.0 million in overnight investment sweep balances into the ICS product to release pledging of investment securities for municipalities to increase available liquidity.
Previous wording
The decrease of $9.0 million in commitments at March 31, 2024 when compared to December 31, 2023 was due to fluctuations in line of credit balances of commercial customers.
Current wording
The decrease of $13.5 million in commitments at June 30, 2024 when compared to December 31, 2023 was due to businesses utilizing construction funding. These balances shifted to loans outstanding.
Previous wording
Credit loss expense for off-balance sheet credit exposures was a credit of $15 thousand for the three-month period ended March 31, 2024.
Current wording
For the six-month periods ended June 30, 2024 and 2023, net credit loss expense for off-balance sheet exposures was a credit of approximately $72,000 and an expense of approximately $90,000, respectively. For the second quarter of 2024 and 2023, net credit loss for off-balance sheet exposures was a credit of approximately $57,000 and a credit of approximately $39,000, respectively.