SIERRA BANCORP

Previous wording

Critical accounting estimates are those that involve the most complex and subjective decisions and assessments and have the greatest potential impact on the Company’s stated results of operations. In Management’s opinion, the Company’s critical accounting estimates deal primarily with the following areas: the establishment of an allowance for credit losses on loans, as explained in detail in Note 2 to the consolidated financial statements and in the “Provision for Credit Losses on Loans” and “Allowance for Credit Losses on Loans” sections of this discussion and analysis; income taxes and deferred tax assets and liabilities, especially with regard to the ability of the Company to recover deferred tax assets as discussed in the “Provision for Income Taxes” and “Other Assets” sections of this discussion and analysis; and Goodwill which is evaluated annually for impairment and for which we have determined that no impairment exists, as discussed in Note 2 to the consolidated financial statements and in the “Other Assets” section of this discussion and analysis. Critical accounting areas are evaluated on an ongoing basis to ensure that the Company’s financial statements incorporate the most recent expectations with regard to those areas.

Current wording

Critical accounting estimates are those that involve the most complex and subjective decisions and assessments and have the greatest potential impact on the Company’s stated results of operations. In Management’s opinion, the Company’s critical accounting estimates deal primarily with the establishment of an allowance for credit losses on loans, as explained in detail in Note 2 to the consolidated financial statements and in the “Credit Losses Expense on Loans” and “Allowance for Credit Losses on Loans” sections of this discussion and analysis. Critical accounting areas are evaluated on an ongoing basis to ensure that the Company’s financial statements incorporate the most recent expectations with regard to those areas.

Previous wording

The Company recognized net income of $34.8 million in 2023 relative to $33.7 million in 2022 and $43.0 million in 2021. Net income per diluted share was $2.36 in 2023, as compared to $2.24 in 2022 and $2.80 for 2021. The Company’s return on average assets and return on average equity were 0.94% and 11.30%, respectively, in 2023, as compared to 0.97% and 10.66%, respectively, in 2022 and 1.29% and 12.05%, respectively, for 2021. The following is a summary of the major factors that impacted the Company’s results of operations for the years presented in the consolidated financial statements.

Current wording

The Company recognized net income of $40.6 million in 2024 relative to $34.8 million in 2023 and $33.7 million in 2022. Net income per diluted share was $2.82 in 2024, as compared to $2.36 in 2023 and $2.24 for 2022. The Company’s return on average assets and return on average equity were 1.12% and 11.62%, respectively, in 2024, as compared to 0.94% and 11.30%, respectively, in 2023 and 0.97% and 10.66%, respectively, for 2022. The following is a summary of the major factors that impacted the Company’s results of operations for the years presented in the consolidated financial statements.

Previous wording

The increase in average earning assets in 2022 over 2021 was due primarily to purchases of investment securities, partially offset by decreases in the average balance of loans. We experienced an increase of $13.5 million in real estate loans primarily driven by the purchase of $173.1 million in high quality 1-4 family residential real estate loans, while all other loan categories declined due to pay-downs, maturities, charge-offs and reduced credit line utilization. The positive impact of average asset growth in 2022 along with a 15 basis points increase in yield was negatively impacted by a 39 basis points increase in yield on interest bearing liabilities due to certificates of deposits and shifting from a net sold position to a net purchased position. The net interest margin in 2022 was 9 basis points lower than 2021.

Current wording

The increase in average earning assets in 2023 over 2022 was due primarily to purchases of investment securities, augmented with increases in the average balance of loans. The average balance of investment securities increased $212.3 million while average gross loan balances increased $57.7 million. We experienced an increase of $22.4 million in real estate loans, $27.1 million increase in mortgage warehouse line utilization, and a $7.9 million increase in other commercial loans. The positive impact of average asset growth in 2023 along with a 100 basis points increase in yield was negatively impacted by a 161 basis points increase in yield on interest bearing liabilities due to a shift by our customers into higher cost certificates of deposits coupled with an increase in more expensive borrowed funds. The net interest margin in 2023 was 10 basis points lower than 2022.

Previous wording

The Company’s assets totaled $3.7 billion at December 31, 2023 as compared to $3.6 billion at December 31, 2022. Total liabilities were $3.4 billion at December 31, 2023 as compared to $3.3 billion at the end of 2022, and shareholders’ equity totaled $338.1 million at December 31, 2023 compared to $303.6 million at December 31, 2022. The following is a summary of key balance sheet changes during 2023.

Current wording

The Company’s assets totaled $3.6 billion at December 31, 2024, as compared to $3.7 billion at December 31, 2023. Total liabilities were $3.3 billion at December 31, 2024, as compared to $3.4 billion at the end of 2023, and shareholders’ equity totaled $357.3 million at December 31, 2024, as compared to $338.1 million at December 31, 2023. The following is a summary of key balance sheet changes during 2024.

Previous wording

Net interest income was $112.4 million in 2023 as compared to $109.6 million in 2022 and $109.0 million in 2021. This equates to increases of 3% in 2023 and 1% in 2022. The level of net interest income we recognize in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. Net interest income is also impacted by the acceleration of net deferred loan fees and costs for loans paid off early (including SBA PPP loans forgiven), reversal of interest for loans placed on non-accrual status, and the recovery of interest on loans that had been on non-accrual and were paid off, sold, or returned to accrual status.

Current wording

Net interest income was $120.0 million in 2024 as compared to $112.4 million in 2023, and $109.6 million in 2022. This equates to increases of 7% in 2024, and 3% in 2023. The level of net interest income we recognize in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. Net interest income is also impacted by the acceleration of net deferred loan fees and costs for loans paid off early, reversal of interest for loans placed on non-accrual status, and the recovery of interest on loans that had been on non-accrual and were paid off, sold, or returned to accrual status.

Previous wording

Net interest income in 2023 as compared to 2022 was impacted by a favorable rate variance of $15.3 million, partially offset by an unfavorable mix variance of $11.0 million, and an unfavorable volume variance of $1.6 million. For 2022 relative to 2021, net interest income reflects a favorable volume variance of $0.4 million and a favorable mix variance of $2.0 million, partially offset by an unfavorable rate variance of $1.8 million. The 2023 versus 2022 favorable rate variance is due mostly to a 100 basis point increase in the yield on average earning assets, mostly in higher yielding floating rate commercial loan obligations (CLO), partially offset by a 161 basis point increase in interest expense on interest bearing liabilities. The 2023 versus 2022 unfavorable volume variance mostly is due to larger increases in borrowed funds and interest bearing deposits over the increases in average earning assets. There was also an unfavorable mix variance of $11.0 million which was mostly from the shift of non or low interest bearing deposits into higher rate time deposits as customers became more rate sensitive and higher volumes of borrowed funds at higher rates than the increases in rates on new volumes of interest earning assets. Increases in higher yielding investment securities and an increase in usage of mortgage warehouse lines offset some of the unfavorable mix variance. The 2022 versus 2021 volume variance is due mostly to increases in average balances, resulting from growth in investment portfolio balances, mostly in floating rate CLOs,

Current wording

For 2023 as compared to 2022, net interest income was impacted by a favorable rate variance of $15.3 million, partially offset by an unfavorable mix variance of $11.0 million, and an unfavorable volume variance of $1.6 million. The 2023 versus 2022 favorable rate variance is due mostly to a 100 basis point increase in the yield on average earning assets, mostly in higher yielding floating rate commercial loan obligations (CLO), partially offset by a 161 basis point increase in interest expense on interest bearing liabilities. The 2023 versus 2022 unfavorable volume variance mostly is due to larger increases in borrowed funds and interest-bearing deposits over the increases in average earning assets. There was also an unfavorable mix variance of $11.0 million which was mostly from the shift of non or low interest bearing deposits into higher rate time deposits as customers became more rate sensitive and higher volumes of borrowed funds at higher rates than the increases in rates on new volumes of interest earning assets. Increases in higher yielding investment securities and an increase in usage of mortgage warehouse lines offset some of the unfavorable mix variance.

Previous wording

partially offset by a decline in average loan balances. The Company’s net interest margin, which is tax-equivalent net interest income as a percentage of average interest-earning assets, declined by 10 basis points to 3.37% in 2023 and declined by nine basis points to 3.47% in 2022 as compared to 2021. The net interest margin compression was mostly caused by an increase in rate and volume (mix) of higher cost of interest bearing liabilities over the increase of volume and yield (mix) on interest earning assets in 2023 as compared to 2022. The net interest margin compression in 2022 as compared to 2021 was caused by an unfavorable rate variance of $1.8 million since the weighted average yield on interest-earning assets increased by only 15 basis points and the weighted average cost of interest-bearing liabil­ities increased by 39 basis points. There was also a favorable mix variance of $2.0 million primarily from the purchase of CLOs at floating higher interest rates, which was partially offset by a decrease in loan balances and an increase in higher cost interest bearing liabilities in 2022 compared to 2021.

Current wording

The Company’s net interest margin, which is tax-equivalent net interest income as a percentage of average interest-earning assets, increased by 29 basis points to 3.66% in 2024 and declined by 10 basis points to 3.37% in 2023 as compared to 2022. The favorable variance in net interest margin was mostly caused by an increase in yield and volume of higher yielding interest earning assets over the decrease of volume on interest bearing liabilities in 2024 as compared to 2023. The net interest margin compression was mostly caused by an increase in rate and volume (mix) of higher cost of interest bearing liabilities over the increase of volume and yield (mix) on interest earning assets in 2023 as compared to 2022.

Previous wording

Rates paid on non-maturity deposits increased 15 basis points in 2023 over the same period in 2022 as competition for deposits has increased with customers becoming more rate sensitive. Rates paid on non-maturity deposits were approximately the same in 2022 and 2021. Interest bearing demand deposits increased 75 basis points in 2023 over 2022, an indication of the fierce competition for deposits industry-wide, while interest bearing demand accounts increased two basis points in 2022 over 2021. There was a 47 basis point increase in money market accounts in 2023 over 2022, with a two basis point decrease on money market accounts in 2022 over 2021. The weighted average cost of interest-bearing liabilities increased 161 basis points in 2023 and increased 39 basis points in 2022. Customer time deposit rates in 2023 over 2022 increased 285 basis points due to a floating rate time deposit product offered by the Bank along with a 248 basis point increase in the rate paid on brokered deposits. The Bank offers a time deposit product with a rate set to a spread to prime. The current spreads range from prime minus 600 basis points to prime minus 375 basis points subject to a floor. Two prime rate increases earlier in 2023, added to rate increases on such accounts. Customer time deposit rates in 2022 increased 124 basis points over 2021, due to a floating rate time deposit account previously discussed, along with a 69 basis point increase in the rate paid on brokered deposits.

Current wording

Rates paid on non-maturity deposits increased 41 basis points in 2024 over the same period in 2023, and increased 15 points in 2023 over the same period in 2022 as competition for deposits has increased with customers becoming more rate sensitive. Interest bearing demand deposits increased 146 basis points in 2024 over 2023 and increased 75 basis points in 2023 over 2022, an indication of the fierce competition for deposits industry wide. Money market accounts increased 96 basis points in 2024 over 2023 but increased 47 basis points in 2023 over 2022. The weighted average cost of interest-bearing liabilities increased 16 points in 2024 over 2023 and increased 161 basis points in 2023 over 2022. Customer time deposit rates decreased 23 basis points in 2024 over 2023, but increased 285 basis points in 2023 over 2022, due partly to a time deposit product with a rate set to a spread to prime. The current spreads on our floating rate time deposits range from prime minus 500 basis points to prime minus 375 basis points subject to a floor. Three prime rate decreases in 2024, and two prime rate increases earlier in 2023, created rate variances on such accounts.

Previous wording

During the year, adjustments to interest income occur due to the following adjustments: interest income recovered upon the resolution of nonperforming loans, the reversal of interest income when a loan is placed on non-accrual status, and accelerated fees or prepayment penalties recognized for early payoffs of loans. Such adjustments totaled $0.9 million of income in 2023, $1.6 million of interest reversals in 2022, and $3.5 million of interest reversals in 2021.

Current wording

During the year, adjustments to interest income occur due to the following adjustments: interest income recovered upon the resolution of nonperforming loans, the reversal of interest income when a loan is placed on non-accrual status, and accelerated fees or prepayment penalties recognized for early payoffs of loans. Such adjustments had no impact on interest income in 2024, totaled $0.9 million of additional interest income in 2023, and amounted to $1.6 million of interest reversals in 2022.

Previous wording

Provision for Loan Losses and Provision for Credit Losses

Current wording

Credit Loss Expense and Provision for Loan Losses

Previous wording

Credit risk is inherent in the business of making loans. The Company sets aside an allowance for credit losses on loans, a contra-asset account, through periodic charges to earnings which are reflected in the income statement as the provision for credit losses on loans. The Company recorded a provision for credit losses on loans of $4.1 million in 2023; a provision for loan losses of $10.9 million in 2022, and a benefit for loan losses of $3.7 million in 2021. The Company was subject to the adoption of the Current Expected Credit Loss ("CECL") accounting method under FASB Accounting Standards Update 2016-03 and related amendments,* Financial Instruments – Credit Losses (Topic 326)* and implemented the update on January 1, 2022.* *Upon implementation the Company recorded a $10.4 million pre-tax increase in the allowance for credit losses, which included a $0.9 million reserve for unfunded commitments as an adjustment to equity, net of deferred taxes. The Company’s $6.8 million favorable decrease for the year ending 2023 compared to the same period in 2022 is primarily due to the impact of lower net charge-offs during the year ending 2023. The Company’s $14.5 million unfavorable increase for the year ending 2022 compared to the same period in 2021 is primarily due to the impact of $11.5 million in net charge-offs during the year ending 2022. The elevated net charge-offs were mostly due to two loan relationships; one dairy loan relationship with total charge-offs of $8.7 million and a single office building loan relationship that was sold at a $1.9 million discount due to an increased risk of default that would have likely led to a prolonged collection period.

Current wording

Credit risk is inherent in the business of making loans. The Company sets aside an allowance for credit losses on loans, a contra-asset account, through periodic charges to earnings which are reflected in the income statement as the provision for credit losses on loans. The Company recorded credit loss expense on loans of $4.6 million in 2024, $4.1 million in 2023, and $10.9 million in 2022. The Company was subject to the adoption of the Current Expected Credit Loss ("CECL") accounting method under FASB Accounting Standards Update 2016-03 and related amendments,* Financial Instruments – Credit Losses (Topic 326)* and implemented the update on January 1, 2022.* *Upon implementation the Company recorded a $10.4 million pre-tax increase in the allowance for credit losses, which included a $0.9 million reserve for unfunded commitments as an adjustment to equity, net of deferred taxes. The Company’s $0.5 million increase in credit loss expense for the year ending 2024 over 2023, was due to a unfavorable increase in the allowance for credit losses on loans individually evaluated, partially offset by the impact of lower net loan charge-offs and a favorable improvement in underlying economic forecasts used as part of our allowance for credit losses model. There was a $6.8 million favorable decrease for the year ending 2023 compared to the same period in 2022 is primarily due to the impact of lower net charge-offs during the year ending 2023.

Previous wording

With the provision for credit losses on loans recorded in 2023 we were able to maintain our allowance for credit losses on loans at a level that, in Management’s judgment, is adequate to absorb expected credit losses over the remaining contractual life on loans related to individually identified loans as well as expected credit losses over the remaining contractual life in the remaining loan portfolio. Specifically identifiable and quantifiable credit losses on loans are immediately charged off

Current wording

With the credit loss expense on loans recorded in 2024 we were able to maintain our allowance for credit losses on loans at a level that, in Management’s judgment, is adequate to absorb expected credit losses over the remaining contractual life on loans related to individually identified loans as well as expected credit losses over the remaining contractual life in the remaining loan portfolio. Specifically identifiable and quantifiable credit losses on loans are immediately charged off against the allowance. The Company experienced net loan charge offs of $3.3 million in 2024, $3.6 million in 2023, and $11.5 million in 2022. The provision for credit losses on loans for 2022 was elevated due to the impact of two loan relationships; one dairy loan relationship with total charge-offs of $8.7 million and a single office building loan relationship that was sold at a $1.9 million discount due to an increased risk of default that would have likely led to a prolonged collection period.

Previous wording

Noninterest income in 2023 decreased $0.4 million or 1% over 2022 and, increased $2.7 million, or 10% in 2022 over 2021. Total noninterest income was 0.89% of average interest-earning assets in 2023 as compared to a ratio of 0.95% in 2022. The ratio decreased in 2023 mostly to an increase in interest-earning assets while noninterest income including service charges on deposit accounts were mostly flat.

Current wording

Noninterest income increased $1.1 million, or 4%, in 2024 over 2023, and decreased $0.4 million, or 1%, in 2023 over 2022. Total noninterest income was 0.95% of average interest-earning assets in 2024 as compared to a ratio of 0.89% in 2023. The ratio increased in 2024 mostly due to noninterest income including service charges on deposit accounts increasing 4%, or $1.1 million, along with a decrease in interest-earning assets.

Previous wording

Debit card fees (included in service charges on deposit accounts) consists of interchange fees from our customers’ use of debit cards for electronic funds transactions. This category decreased in 2023 over 2022 by $0.2 million but was relatively flat in 2022 and 2021. The unfavorable variance in 2023 was a result of a brand change later in the year from Mastercard to VISA.

Current wording

Interchange income from debit cards (included in service charges on deposit accounts) was $8.3 million, and was mostly flat in 2024 over 2023, but decreased in 2023 over 2022 by $0.2 million. The unfavorable variance in 2023 was a result of a brand change later in the year from Mastercard to VISA.

Previous wording

BOLI income generally fluctuates based on the market due to the Company’s “separate account” BOLI being invested in assets that closely mirror investments choices of deferred compensation participants. There is also a part of BOLI that is “general account” and receives a standard crediting rate from the carrier which remains relatively stable year over year. However, the separate-account BOLI used to offset deferred compensation fluctuates significantly from year-to-year as many of our deferred compensation participants are invested in equity-index style funds. In the comparative years ending 2023 over 2022, BOLI income increased $2.8 million; however, in 2022 over 2021, BOLI income decreased $3.6 million. The Company had $9.9 million invested in separate account BOLI at December 31, 2023. This separate account BOLI closely matched participant-directed investment allocations that can include equity, bond, or real estate indices, and are thus subject to gains or losses which often contribute to significant fluctuations in income (and associated expense accruals). Net gains on separate account BOLI totaled $0.9 million in 2023 as compared to net losses of $2.0 million in 2022 and gains of $1.7 million in 2021. This resulted in a favorable variance of $2.9 million for the comparative years ending 2023 as compared to 2022 and an unfavorable variance of $3.7 million for the comparative years ending 2022 as compared to 2021. As noted, gains and losses on separate account BOLI are related to expense accruals or reversals associated with participant gains and losses on deferred compensation balances, thus the overall net impact on taxable income tends to be minimal. The Company’s books also reflect a net cash surrender value for general account BOLI of $41.7 million and $43.2 million, respectively for the years ending December 31, 2023 and 2022. General account BOLI produces income that is used to help offset expenses associated with executive salary continuation plans, director retirement plans and other employee benefits. Interest credit rates on general account BOLI do not change frequently so the income has typically been fairly consistent with $0.9 million of general account BOLI income recorded for the year ending December 31, 2023 and $1.0 million record for the two ending December 31, 2022 and 2021.

Current wording

BOLI income generally fluctuates based on the market due to the Company’s “separate account” BOLI being invested in assets that closely mirror investments choices of deferred compensation participants. There is also a part of BOLI that is “general account” and receives a standard crediting rate from the carrier which remains relatively stable year over year. However, the separate-account BOLI used to offset deferred compensation fluctuates significantly from year-to-year as many of our deferred compensation participants are invested in equity-index style funds. In the comparative years ending 2024 over 2023, BOLI income increased $0.9 million; however, in 2023 over 2022, BOLI income increased $2.8 million. The Company had $11.8 million invested in separate account BOLI at December 31, 2024. This separate account BOLI closely matched participant-directed investment allocations that can include equity, bond, or real estate indices, and are thus subject to gains or losses which often contribute to significant fluctuations in income (and associated expense accruals). Net gains on separate account BOLI totaled $1.7 million in 2024, and $0.9 million in 2023, as compared to net losses of $2.0 million in 2022. This resulted in a favorable variance of $0.8 million for the comparative years ending 2024 as compared to 2023, and $2.9 million for the comparative years ending 2023 as compared to 2022. As noted, gains and losses on separate account BOLI are related to expense accruals or reversals associated with participant gains and losses on deferred compensation balances, thus the overall net impact on taxable income tends to be minimal. The Company’s books also reflect a net cash surrender value for general account BOLI of $41.3 million and $41.7 million, respectively for the years ending December 31, 2024 and 2023. General account BOLI produces income that is used to help offset expenses associated with executive salary continuation plans, director retirement plans and other employee benefits. Interest credit rates on general account BOLI do not change frequently so the income has typically been fairly consistent with $1.0 million of general account BOLI income recorded for the year ending December 31, 2024, $0.9 million recorded for the year ending December 31, 2023, and $1.0 million recorded for the year ending December 31, 2022.

Previous wording

Gain on the sale of fixed assets for $15.3 million for the year ending 2023, was due to the sale of 11 Bank owned branch buildings that were subsequently leased back. This transaction and related gain was part of an overall balance sheet restructuring. The Company recognized a $14.5 million loss for the year ending December 31, 2023 on investment securities intended for sale in December 2023 and subsequently sold in January 2024. This securities strategy identified $196.7 million in bonds yielding 2.61% to be sold in January 2024 at a loss of $14.5 million. The proceeds from the securities strategy went to paydown a portion of other borrowed funds with an average rate of 5.52%. The Company also realized a $0.4 million gain on the sale of securities during the year ending December 31, 2023, a $1.5 million gain for the same period in 2022 from a portfolio restructure to decrease effective duration, taking advance of slight rallies in the Treasury market in early and late 2022, as well as a nominal gain for the same period in 2021.

Current wording

Gain on the sale of fixed assets for $3.8 million, and $15.3 million, for the years ending 2024, and 2023 respectively, was due to the sale of Bank owned branch buildings that were subsequently leased back. Both of these transactions and related gains were part of an overall balance sheet restructuring. A securities strategy identified $196.7 million in bonds yielding 2.61%, sold in January 2024 at a loss of $14.5 million. There were also $53.8 million in bonds sold during the first quarter of 2024, at a loss of $2.9 million. The proceeds from the securities strategy went to paydown a portion of other borrowed funds with an average rate of 5.52%. The Company also realized a $0.2 million and $0.4 million gain on the sale or call of securities during the years ending December 31, 2024 and 2023 respectively, and, a $1.5 million gain for the same period in 2022 from a portfolio restructure to decrease effective duration, taking advantage of slight rallies in the Treasury market in early and late 2022.

Previous wording

The other category, decreased $2.8 million to $4.4 million in 2023 and increased to $7.2 million in 2022 from $2.9 million in 2021. The year over year decrease in 2023 over 2022 was a result of 2022 events that did not recur in 2023 including $3.6 million from the sale of other assets, and the recovery of prior period legal expenses.

Current wording

The other category, decreased $0.8 million to $3.5 million in 2024, $2.8 million to $4.4 million in 2023 and increased to $7.2 million in 2022. The year over year decrease in 2024 over 2023, and in 2023 over 2022 was a result of events that did not recur in 2024 and 2023. For 2024 over 2023, the variance is mostly due to gain on life insurance proceeds while the variance for 2023 over 2022, was primarily due to a $3.6 million gain on the sale of other assets.

Previous wording

Total operating expense, or noninterest expense, increased by $7.9 million, or 9%, in 2023 as compared to 2022, and by $1.2 million, or 1%, in 2022 as compared to 2021.

Current wording

Total operating expense, or noninterest expense, increased slightly by $0.2 million, or 0.2%, in 2024 as compared to 2023, and by $7.9 million, or 9%, in 2023 as compared to 2022.

Previous wording

The largest component of noninterest expense, salaries, and employee benefits increased $3.9 million or 8% in 2023 as compared to 2022, and increased $4.6 million, or 11% in 2022 as compared to 2021. The increase in 2023 was due to the strategic hiring of new loan production teams and certain management positions, and standard annual increases to our employee’s base compensation. The Company also incurred severance payments of $0.9 million due to a strategic reduction in force on 14 positions eliminated through efficiencies gained from operational reorganization and the deployment of new technologies, partially offset by a $0.5 million reduction in the bonus accrual. The increase in 2022 was due mostly to the strategic hiring and geographic expansion of new loan production teams, increases to the Company’s minimum wage, and standard annual increases to our employee’s base compensation. Loan origination salaries that were deferred from current expense for recognition over the life of related loans totaled $2.7 million in 2023, $2.3 million in 2022, and $1.1 million for 2021.

Current wording

The largest component of noninterest expense, salaries, and employee benefits decreased $0.6 million, or 1% in 2024 as compared to 2023, and increased $3.9 million, or 8% in 2023 as compared to 2022. The decrease in 2024 was due to strategic decisions in 2023 that created operational efficiencies and reduced noninterest expense, as discussed below. The increase in 2023 was due to the strategic hiring of new loan production teams and certain management positions, and standard annual increases to our employee’s base compensation. Loan origination salaries that were deferred from current expense for recognition over the life of related loans totaled $3.0 million in 2024, $2.7 million in 2023, and $2.3 million in 2022.

Previous wording

Salaries and benefits were 55% of total operating expense in both 2023 and 2022 and were 51% in 2021. The number of full-time equivalent staff employed by the Company totaled 485 at the end of 2023, as compared to 491 at December 31, 2022 and 480 at December 31, 2021. The decrease for the year ending 2023 in FTE was due to the reduction in force as several management positions were eliminated due to operational efficiencies. The increase in FTE during 2022 was due to the strategic hiring of lending and management staff.

Current wording

Salaries and benefits were 56% of total operating expense in 2024, and 55% in 2023, and 2022. The number of full-time equivalent staff employed by the Company totaled 485 at the end of 2024, as compared to 489 at December 31, 2023, and 491 at December 31, 2022. The decrease for the years ending 2024, and 2023 in FTE was due to the reduction in force as several management positions were eliminated due to operational efficiencies.

Previous wording

Total rent and occupancy expense, including furniture and equipment costs, increased $0.4 million in 2023 as compared to 2022, and decreased $0.1 million in 2022 as compared to 2021. The increase in 2023 was due to a one-time payment of $0.2 million for home office stipends for staff that work remotely and regular rent escalations. The decrease in 2022 over 2021 was due to the consolidation of five branch facilities in 2021. The sale leaseback transaction of 11 Bank-owned buildings discussed in “Premises and Equipment” is expected to add approximately $0.5 million of rent expense in 2024.

Current wording

Total rent and occupancy expense, including furniture and equipment costs, increased $2.2 million in 2024 as compared to 2023, and $0.4 million in 2023 as compared to 2022. The increase in 2024 was due to higher rent expense from the sale/leaseback transactions in the fourth quarter of 2023 and first quarter of 2024. The increase in 2023 was due to a one-time payment of $0.2 million for home office stipends for staff that work remotely and regular rent escalations.

Previous wording

Advertising and promotion costs increased $0.5 million or 28%, in 2023 over 2022, and increased $0.2 million or 14%, in 2022 over 2021. The increase in 2023 was mostly due to a $0.3 million increase in deposit program costs due to a deposit acquisition campaign. The increase in 2022 was due to the resumption of special events as COVID-19 restrictions were lifted.

Current wording

Advertising and promotion costs decreased $0.8 million or 36%, in 2024, over 2023, and increased $0.5 million or 28%, in 2023, over 2022. The decrease in 2024 was a result of a change in the Company’s marketing strategy, while the increase in 2023 was mostly due to a $0.3 million increase in deposit program costs due to a deposit acquisition campaign.

Previous wording

Data processing costs decreased by $0.4 million or 6% in 2023 as compared to 2022 increased by $0.3 million or 5% in 2022 as compared to 2021. The decrease in 2023 was mostly from a $0.6 million decrease in core processing costs and lower internet banking costs, partially offset by higher Visa conversion costs. The Company renegotiated its core processing contract which resulted in overall savings. The increase in 2022 was primarily from an increase in core processing costs. In late 2022, the Company renegotiated its core processing contract and expects annual savings from this renegotiation of approximately $1.0 million.

Current wording

Data processing costs increased $0.4 million, or 6% in 2024, as compared to 2023, and decreased by $0.4 million or 6% in 2023 as compared to 2022. The increase in 2024 was primarily from new loan origination software to better serve our customers and create operational efficiencies in the near term, along with increased costs for data storage. The decrease in 2023 was mostly from a $0.6 million decrease in core processing costs and lower internet banking costs, partially offset by higher Visa conversion costs. The Company renegotiated its core processing contract which resulted in overall savings.

Previous wording

Deposit services costs decreased by $0.7 million or 8% in 2023 as compared to 2022 and increased by $0.4 million or 5% in 2022 as compared to 2021. Deposit costs favorable variance in 2023 over 2022 were due to a decrease in deposit statement costs, and lower ATM network costs. Deposit costs were impacted in 2022 by increases in debit card processing due to higher customer activity levels and increased utilization of armored car services. These increases were partially offset by decreases in ATM servicing costs as we replaced most of our ATMs throughout 2021 with newer models that require less maintenance.

Current wording

Deposit services costs decreased by $0.4 million, or 4% in 2024 as compared to 2023, and decreased by $0.7 million or 8% in 2023 as compared to 2022. The decrease in 2024 was due to favorable variances in debit card processing and ATM networks costs, from a branding change to VISA from Mastercard in 2023. Deposit costs favorable variance in 2023, over 2022 were due to a decrease in deposit statement costs, and lower ATM network costs.

Previous wording

Loan services costs are comprised of loan processing costs, and net costs associated with foreclosed assets. Loan processing costs, which include expenses for property appraisals and inspections, loan collections, demand and foreclosure activities, loan servicing, loan sales, and other miscellaneous lending costs, increased by $0.1 million or 9% in 2023 as compared to 2022 and increased by $0.1 million or 10% in 2022 as compared to 2021. The increase in 2023 was due to a $0.6 million increase in foreclosed asset expenses related to the foreclosure and subsequent sale of one large loan relationship in the first quarter of 2023. The increase in 2022 was primarily due to an increase of $0.1 million in the provision for unfunded commitments. Foreclosed assets costs are comprised of write-downs taken subsequent to reappraisals, OREO operating expense (including property taxes), and losses on the sale of foreclosed assets, net of rental income on OREO properties and gains on the sale of foreclosed assets. There were $0.7 million expenses in 2023 and $0.1

Current wording

Loan services costs are comprised of loan processing costs, and net costs associated with foreclosed assets. Loan processing costs, which include expenses for property appraisals and inspections, loan collections, demand and foreclosure activities, loan servicing, loan sales, and other miscellaneous lending costs, decreased by $0.1 million or 11%, in 2024 as compared to 2023, and increased by $0.1 million or 9%, in 2023 as compared to 2022. The decrease in 2024 over 2023, as well as the increase in 2023 over 2022, was due to fluctuations in appraisal costs. Foreclosed assets costs are comprised of write-downs taken subsequent to reappraisals, OREO operating expense (including property taxes), and losses on the sale of foreclosed assets, net of rental income on OREO properties and gains on the sale of foreclosed assets. There were no expenses in 2024, $0.7 million expenses in 2023 and $0.1 million in expenses in 2022. These costs fluctuate based on market conditions of OREO relative to our holding value, the nature of the underlying properties and the volume of OREO properties in inventory. At the end of 2024, the Company had no OREO properties remaining in inventory.

Previous wording

The “other operating costs” category includes telecommunications expense, postage, and other miscellaneous costs. Telecommunications expense was flat at $1.6 million in 2023 as compared to 2022 and decreased by 22% to $1.6 million in 2022 as compared to 2021. The decrease in 2022 was due to the reduction of redundancy in lines during 2021. Postage expense decreased by $0.2 million or 41% in 2023 over 2022 and increased by $0.1 million or 21% in 2022 as compared to 2021. The decrease in 2023 was due to additional disclosure mailings in 2022 that did not recur in 2023. The increase in 2022 was due to deposit account disclosure mailings from the change in our overdraft and NSF fee practices. Other miscellaneous costs under other operating costs was primarily unchanged in 2023 over 2022 but increased by $0.5 million or 25% in 2022 as compared to 2021. The increase in 2022 was primarily due to restitution payments to customers charged nonsufficient fund fees on representments in the past five years.

Current wording

The “other operating costs” category includes telecommunications expense, postage, and other miscellaneous costs. Telecommunications expense decreased $0.5 million, or 13%, in 2024, as compared to 2023, and was flat at $1.6 million in 2023, as compared to 2022. The decrease in 2024 was due to payments in 2023 that did not reoccur in 2024, mainly restitution payments made in 2023 to analysis customers, and hiring and recruiting costs.

Previous wording

Total Professional Services costs, which consists of legal and accounting, acquisition, directors fees, and other professional services costs, increased by $3.1 million in 2023 as compared to 2022 and decreased by $4.7 million or 53% in 2022 as compared to 2021. Legal and Accounting costs increased $0.1 million or 5% in 2023 as compared to 2022 and decreased by $2.7 million or 56% in 2022 as compared to 2021. The increase in 2023 was primarily from an increase in audit costs, while the decrease in 2022 was mostly due to a decrease in legal costs and related legal reserves, along with lower costs related to certain audit functions that were previously outsourced. Directors’ costs increased $2.1 million in 2023 as compared to 2022 primarily due to an increase in deferred compensation expense which is linked to the favorable fluctuation in BOLI income, while the decrease in 2022 was mostly from the inverse change in the same categories. Other professional services costs include FDIC assessments and other regulatory expenses, and certain insurance costs among other things. This category increased $0.9 million or 46% in 2023 as compared to 2022 and decreased by $0.1 million or 7% in 2022 as compared to 2021. The increase in 2023 was primarily from an in increase in FDIC assessment expenses.

Current wording

Total Professional Services costs, which consists of legal and accounting, acquisition, directors fees, and other professional services costs, increased by $0.9 million, or 12%, in 2024 as compared to 2023, and $3.1 million in 2023, as compared to 2022. Legal and Accounting costs were flat in 2024, but increased $0.1 million, or 5% in 2023, as compared to 2022. The increase in 2024 was primarily due to an unfavorable variance in directors’ deferred compensation expense while the increase in 2023 was primarily from an increase in audit costs, which were previously outsourced. Directors’ costs increased $0.7 million, or 33%, in 2024 over 2023, and $2.1 million in 2023 as compared to 2022 primarily due to an increase in deferred compensation expense which is linked to the favorable fluctuation in BOLI income. Other professional services costs include FDIC assessments and other regulatory expenses, and certain insurance costs among other things. This category increased $0.1 million, or 4%, in 2024 as compared to 2023, and $0.9 million or 46%, a decrease in interest-earning assets while in 2023, as compared to 2022. The increase in 2024 as compared to 2023, is primarily due to an increase in insurance and bond rating costs. The increase in 2023 was primarily from an increase in FDIC assessment expenses.

Previous wording

Employee deferred compensation expense accruals totaled $0.2 million in 2023, $0.1 million in 2022, and $0.2 million in 2021, and are included in “salaries and employee benefits’ noted above. Directors deferred compensation plan accruals totaled $0.8 million in 2023, and $1.1 million in both 2022 and 2021, and are included in “other professional services” above. As previously mentioned in our discussion of BOLI income, deferred compensation plan accruals are related to separate account BOLI income and losses and the net income impact of all income/expense accruals related to deferred compensation is usually minimal.

Current wording

Employee deferred compensation expense accruals totaled $0.4 million in 2024, $0.2 million in 2023, and $0.1 million in 2022, and are included in “salaries and employee benefits’ noted above. Directors deferred compensation plan accruals totaled $1.6 million in 2024, $0.8 million in 2023, and $(1.1) million in 2022, and are included in “other professional services” above. As previously mentioned in our discussion of BOLI income, deferred compensation plan accruals are related to separate account BOLI income and losses and the net income impact of all income/expense accruals related to deferred compensation is usually minimal.

Previous wording

Stationery and supply costs were mostly unchanged in 2023 as compared to 2022 but increased by $0.1 million or 41% in 2022 as compared to 2021. The increase in 2022 was primarily from startup costs of new loan production offices.

Current wording

Stationery and supply costs were mostly unchanged both in 2024, as compared to 2023, and for 2023, as compared to 2022.

Previous wording

Sundry and teller costs were $1.3 million in 2023, $0.7 million in 2022, and $0.6 million in 2021. In 2023, as well as 2022 and 2021, debit card losses are elevated and trending upwards consistent with the higher volume of debit card transactions. These debit card dispute and fraud costs increased in 2023 with our debit card conversion from Mastercard to Visa earlier in the year, and are expected to decline in 2024.

Current wording

Sundry and teller costs were $1.2 million in 2024, $1.3 million in 2023, and $0.7 million in 2022. In 2024, as well as 2023 and 2022, debit card losses are elevated and consistent with the higher volume of debit card transactions. These debit card dispute and fraud costs increased in 2023 with our debit card conversion from Mastercard to Visa earlier in the year and declined 8% or $0.1 million in 2024.

Previous wording

The Company’s tax-equivalent overhead efficiency ratio was 63.9% in 2023, 60.2% in 2022, and 59.9% in 2021. The overhead efficiency ratio represents total noninterest expense divided by the sum of fully tax-equivalent net interest and noninterest income, with the provision for credit losses on loans and gains/losses excluded from the equation. The Company is continually working on efforts to control costs, as well as increase income which is the denominator of the equation.

Current wording

The Company’s tax-equivalent overhead efficiency ratio was 60.8% in 2024, 63.9% in 2023, and 60.2% in 2022. The overhead efficiency ratio represents total noninterest expense divided by the sum of fully tax-equivalent net interest and noninterest income, with the provision for credit losses on loans and gains/losses excluded from the equation. The Company is continually working on efforts to control costs, as well as increase income which is the denominator of the equation.

Previous wording

Our income tax provision was $11.6 million, or 25.0% of pre-tax income in 2023, $11.3 million, or 25.1% of pre-tax income in 2022 and $14.2 million, or 24.8% of pre-tax income in 2021. The tax accrual rate was higher in 2023 and in 2022 due to a lower proportion of non-taxable income to taxable income.

Current wording

Our income tax provision was $13.3 million, or 24.7% of pre-tax income in 2024, $11.6 million, or 25.0% of pre-tax income in 2023, and $11.3 million, or 25.1% of pre-tax income in 2022. The tax accrual rate was lower in 2024 due to an increase in the net benefit from tax credits, but was higher in 2023 and in 2022 due to a lower proportion of non-taxable income to taxable income

Previous wording

The Company sets aside a provision for income taxes on a monthly basis. The amount of that provision is determined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent differences, and then subtracting available tax credits. Permanent differences include but are not limited to tax-exempt interest income, BOLI income or loss, and certain book expenses that are not allowed as tax deductions. The Company’s investments in state, county and municipal bonds provided $10.9 million of federal tax-exempt income in 2023, $8.8 million in 2022, and $6.2 million in 2021. Moreover, in addition to life insurance proceeds of $0.9 million in 2023 and $0.4 million in both 2022 and 2021, net increases in the cash surrender value of bank-owned life insurance added $1.8 million to tax-exempt income in 2023, and $2.6 million to tax-exempt income in 2021, but reduced tax-exempt income by $1.0 million in 2022.

Current wording

The Company sets aside a provision for income taxes on a monthly basis. The amount of that provision is determined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent differences, and then subtracting available tax credits. Permanent differences include but are not limited to tax-exempt interest income, BOLI income or loss, and certain book expenses that are not allowed as tax deductions. The Company’s investments in state, county and municipal bonds provided $6.7 million of federal tax-exempt income in 2024, $10.9 million in 2023, and $8.8 million in 2022. Moreover, in addition to life insurance proceeds of $0.2 million in 2024, $0.9 million in 2023 and $0.4 million in 2022, net increases in the cash surrender value of bank-owned life insurance added $2.7 million to tax-exempt income in 2024, and $1.8 million to tax-exempt income in 2023, but reduced tax-exempt income by $1.0 million in 2022.

Previous wording

Our tax credits consist primarily of those generated by investments in low-income housing tax credit funds. We had a total of $14.4 million invested in low-income housing tax credit funds as of December 31, 2023 and $10.1 million as of December 31, 2022, which are included in other assets rather than in our investment portfolio. Those investments have generated substantial tax credits over the past few years, with about $0.8 million in credits available for the 2023 tax year and $0.5 million in credits available for each of the tax years 2022, and 2021. The credits are dependent upon the occupancy level of the housing projects and income of the tenants and cannot be projected with certainty. Furthermore, our capacity to utilize them will continue to depend on our ability to generate sufficient pre-tax income. We plan to invest in additional tax credit funds in the future, but if the economics of such transactions do not justify continued investments, then the level of low-income housing tax credits will taper off in future years until they are substantially utilized by the end of 2037. That means that even if taxable income stayed at the same level through 2037, our tax accrual rate would gradually increase.

Current wording

Our tax credits consist primarily of those generated by investments in low-income housing tax credit funds. We had a total of $25.4 million invested in low-income housing tax credit funds as of December 31, 2024, and $14.4 million as of December 31, 2023, which are included in other assets rather than in our investment portfolio. Those investments have generated substantial tax credits over the past few years, with about $1.8 million, $0.6 million, and $0.5 million in credits available for the for the tax years 2024, 2023, and 2022, respectively. The credits are dependent upon the occupancy level of the housing projects and income of the tenants and cannot be projected with certainty. Furthermore, our capacity to utilize them will continue to depend on our ability to generate sufficient pre-tax income. We plan to invest in additional tax credit funds in the future, but if the economics of such transactions do not justify continued investments, then the level of low-income housing tax credits will taper off in future years until they are substantially utilized by the end of 2036. That means that even if taxable income stayed at the same level through 2036, our tax accrual rate would gradually increase.

Previous wording

Deposits declined $84.9 million, or 3%. Total capital increased by $34.5 million, or 11%. The major components of the Company’s balance sheet are individually analyzed below, along with information on off-balance sheet activities and exposure.

Current wording

Deposits increased $130.4 million, or 5%. Total capital increased by $19.2 million, or 6%. The major components of the Company’s balance sheet are individually analyzed below, along with information on off-balance sheet activities and exposure.

Previous wording

The Company’s loan balances increased $37.1 million or 2% in 2023. The increase was primarily a result of a $50.6 million increase in mortgage warehouse utilization, $17.1 million increase in commercial real estate, and a $53.3 million increase in other commercial loans. Negatively impacting these positive variances were loan paydowns and maturities resulting in net declines in many categories even with solid loan production. In particular there was a $46.1 million decrease in farmland, $12.2 million decrease in other construction and $25.4 million decrease in residential real estate. Further, SBA PPP loan forgiveness resulted in a $1.3 million decline in loan balances, included in the other commercial loan variance noted above.

Current wording

The Company’s loan balances increased $239.7 million, or 12% in 2024. The increase was primarily a result of a $210.4 million increase in mortgage warehouse utilization, $32.2 million increase in commercial real estate loans, $10.1 million increase in farmland loans, and a $20.7 million increase in other commercial loans. Negatively impacting these positive variances were loan paydowns and maturities in many categories despite solid loan production. In particular there was a $30.6 million decrease in residential real estate, a $0.8 million decrease in other construction, and $0.7 million decrease in consumer loans.

Previous wording

The increase in 2021 was mostly from the purchase of high quality jumbo mortgage pools early in the year. For 2022, the Company had $173.1 million in loan purchases which were designed as a bridge to organic loan growth with the hiring of loan production teams in both 2023 and 2022. These new loan production teams were hired to develop relationships within our footprint for both loans and deposits. These new loans should provide additional diversification of the loan portfolio and provide floating rate loan products which complement the fixed rate real estate loans. As demonstrated by the expansion of the lending teams both in 2023 and 2022, management remains focused on organic loan growth which totaled $185.3 million and $292.2 million, respectively during the years ending 2023 and 2022. No assurance can be provided with regard to future net growth in aggregate loan balances given occasional surges in prepayments, fluctuations in mortgage warehouse lending and maintaining concentrations in certain sectors within our risk management parameters.

Current wording

The increase in 2023 was primarily a result of a $50.6 million increase in mortgage warehouse utilization, $17.1 million increase in commercial real estate, and a $53.3 million increase in other commercial loans offset by a $46.1 million decrease in farmland, a $12.2 million decrease in other construction and a $25.4 million decrease in residential real estate. For 2022, the Company had $173.1 million in residential mortgage loan purchases which were designed as a bridge to organic loan growth with the hiring of loan production teams. These new loan production teams were hired to develop relationships within our footprint for both loans and deposits. These new loans provide additional diversification of the loan portfolio and are mostly floating rate loan products which complement the fixed rate real estate loans. As demonstrated by the expansion of the lending teams both in 2023 and 2022, management remains focused on organic loan growth which totaled $216.5 million and $185.3 million, respectively during the years ending 2024 and 2023. No assurance can be provided with regard to future net growth in aggregate loan balances given occasional surges in prepayments, fluctuations in mortgage warehouse lending and maintaining concentrations in certain sectors within our risk management parameters.

Previous wording

As a part of their regulatory oversight, the federal regulators have issued guidelines on sound risk management practices with respect to a financial institution’s concentrations in commercial real estate (“CRE”) lending activities. These guidelines were issued in response to the agencies’ concerns that rising CRE concentrations might expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the commercial real estate market. The guidelines identify certain concentration levels that, if exceeded, will expose the institution to additional supervisory analysis with regard to the institution’s CRE concentration risk. The guidelines, as amended, are designed to promote appropriate levels of capital and sound loan and risk management practices for institutions with a concentration of CRE loans. In general, the guidelines, as amended, establish the following supervisory criteria as preliminary indications of possible CRE concentration risk: (1) the institution’s total construction, land development and other land loans represent 100% or more of Tier 1 risk-based capital plus allowance for credit losses loans; or (2) total CRE loans as defined in the regulatory guidelines represent 300% or more of Tier 1 risk-based capital plus allowance for credit losses on loans, and the institution’s CRE loan portfolio has increased by 50% or more during the prior 36 month period. This ratio was 246% at December 31, 2022 and declined to 243% at December 31, 2023. At December 31, 2023, the Bank’s total construction, land development and other land loans represented 1% of Tier 1 risk-based capital plus allowance for credit losses on loans. The Bank believes that it does not have a concentration in CRE loans at December 31, 2023, above the prudential regulatory guidelines note above. The Bank and its board of directors have discussed the guidelines and believe that the Bank’s underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are sufficient to address the risk management of CRE under the guidelines.

Current wording

As a part of their regulatory oversight, the federal regulators have issued guidelines on sound risk management practices with respect to a financial institution’s concentrations in commercial real estate (“CRE”) lending activities. These guidelines were issued in response to the agencies’ concerns that rising CRE concentrations might expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the commercial real estate market. The guidelines identify certain concentration levels that, if exceeded, will expose the institution to additional supervisory analysis regarding the institution’s CRE concentration risk. The guidelines, as amended, are designed to promote appropriate levels of capital and sound loan and risk management practices for institutions with a concentration of CRE loans. In general, the guidelines, as amended, establish the following supervisory criteria as preliminary indications of possible CRE concentration risk: (1) the institution’s total construction, land development and other land loans represent 100% or more of Tier 1 risk-based capital plus allowance for credit losses loans; or (2) total CRE loans as defined in the regulatory guidelines represent 300% or more of Tier 1 risk-based capital plus allowance for credit losses on loans, and the institution’s CRE loan portfolio has increased by 50% or more during the prior 36 month period. This ratio was 243% at December 31, 2023, and declined to 236% at December 31, 2024. At December 31, 2024, the Bank’s total construction, land development and other land loans represented 1% of Tier 1 risk-based capital plus allowance for credit losses on loans. The Bank believes that it does not have a concentration in CRE loans at December 31, 2024, above the prudential regulatory guidelines note above. The Bank and its board of directors have discussed the guidelines and believe that the Bank’s underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are sufficient to address the risk management of CRE under the guidelines.

Previous wording

Generally, the Company’s contractual life of loans matches the loan’s amortization period, which is generally 25 years. Rates on nonresidential loans longer than five years typically adjust starting before ten years and each five years thereafter. For a comprehensive discussion of the Company’s liquidity position, balance sheet repricing characteristics, and sensitivity to interest rates changes, refer to the “Liquidity and Market Risk” section of this discussion and analysis.

Current wording

Rates on nonresidential loans longer than five years typically adjust starting before ten years and each five years thereafter. Included in the $471.2 million of loans due after 5 years through fifteen years are $150.7 million of adjustable-rate loans subject to periodic rate adjustments. Similarly, included in the $1.2 billion of loans that do not mature for more than fifteen years are $570.9 million of adjustable-rate loans subject to periodic rate adjustments. Generally, the Company’s contractual life of loans matches the loan’s amortization period, which is generally 25 years. For a comprehensive discussion of the Company’s liquidity position, balance sheet repricing characteristics, and sensitivity to interest rates changes, refer to the “Liquidity and Market Risk” section of this discussion and analysis.

Previous wording

Unused commitments, excluding mortgage warehouse and overdraft lines, were $205.7 million at December 31, 2023, compared to $219.7 million at December 31, 2022. Total line utilization, excluding mortgage warehouse and overdraft lines, was 62% at December 31, 2023 and 59% at December 31, 2022 and was 53% at December 31, 2023 and 32% at December 31, 2022, including mortgage warehouse lines. Mortgage warehouse utilization increased to 36% at December 31, 2023, as compared to 10% at December 31, 2022. Total mortgage warehouse availability declined to $204.5 million at December 31, 2023 as compared to $594.6 million at December 31, 2022. With current industry volumes down due to decreased purchase and refinance activity we experienced some lenders leaving the Bank and others decreasing their lines of credit to match their current volumes. It is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 20% of gross loans outstanding at December 31, 2023 and 40% at December 31, 2022. The Company also had undrawn letters of credit issued to customers totaling $5.0 million at both December 31, 2023 and 2022. Off-balance sheet obligations pose potential credit risk to the Company, and a $0.5 million reserve for unfunded commitments is reflected as a liability in our consolidated balance sheet at December 31, 2023, down $0.3 million from the previous year. The unused commitments related to mortgage warehouse are unconditionally cancellable at any time. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-K outlines resources available to draw upon should we be required to fund a significant portion of unused commitments.

Current wording

Unused commitments, excluding mortgage warehouse and overdraft lines, were $256.9 million at December 31, 2024, compared to $203.6 million at December 31, 2023. Total line utilization, excluding mortgage warehouse and overdraft lines, was 57% at December 31, 2024, and 62% at December 31, 2023. Including mortgage warehouse utilization, overall utilization was 51% at December 31, 2024, as compared to 53% at December 31, 2023. Mortgage warehouse utilization increased to 51% at December 31, 2024, as compared to 36% at December 31, 2023. Due to new customer growth, total mortgage warehouse availability increased to $311.6 million at December 31, 2024, as compared to $204.5 million at December 31, 2023. The Bank increased the number of mortgage warehouse customers by 60% in 2024. This has facilitated an increase in outstanding balances in 2024 by $210.4 million, or 181%, to $326.4 million at December 31, 2024. It is not likely that all of those commitments will ultimately be drawn down. Unused commitments represented approximately 28% of gross loans outstanding at December 31, 2024, and 23% at December 31, 2023. Included in used commitments are undrawn letters of credit issued to customers totaling $5.0 million at both December 31, 2024 and 2023. Off-balance sheet obligations pose potential credit risk to the Company, and a $0.7 million reserve for unfunded commitments is reflected as a liability in our consolidated balance sheet at December 31, 2024, an increase of $0.2 million from the previous year. The unused commitments related to mortgage warehouse are unconditionally cancellable at any time. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-K outlines resources available to draw upon should we be required to fund a significant portion of unused commitments.