FVCBankcorp Inc
For the period ended Mar 31, 2025. Filed May 14, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 14, 2025
FVCB$16.25-0.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-13.
0001675644-24-000192
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-14.
0001675644-25-000090
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 195 previous paragraphs and 163 current paragraphs.
86 unchanged; 56 reworded; 21 added; 47 removed; 6 previous and 0 current paragraphs rearranged.
Tables are not compared: 20 previous and 17 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 (21)
Current report
•the concentration of our business in and around the Washington, D.C. metropolitan area and the effects of changes in the economic, political, and environmental conditions on this market, including potential reductions in spending by the U.S. government and related reductions in the federal workforce;
Current report
Allowance for Credit Losses - Loans
Current report
Net interest income for the three months ended March 31, 2025 was $15.1 million, compared to $12.8 million for the same period of 2024, an increase of $2.3 million, or 18%. Provision for credit losses for the three months ended March 31, 2025 was $200 thousand, compared to none for the same period of 2024. Noninterest income was $671 thousand and $395 thousand for the three months ended March 31, 2025 and 2024, respectively, an increase of $276 thousand, or 70%. Noninterest expensewas $9.1 millionand $8.6 million for the three months ended March 31, 2025 and 2024, respectively, an increase of $508 thousand, or 6%.
Current report
(2)Includes the impact of restricted stock
Current report
Net interest income totaled$15.1 million for the three months ended March 31, 2025 compared to $12.8 million for the three months ended March 31, 2024, an increase of $2.3 million, or 18%. The increase in net interest income is primarily due to an increase in loan interest income as the loan portfolio reprices in this higher interest rate environment.
Current report
Our net interest margin for the three months ended March 31, 2025 and 2024 was 2.83% and 2.47%, respectively, an increase of 36 basis points, or 15%. The increase in our net interest margin was a result of continued repricing of our loan renewals and newly originated loans to current market interest rates over the past year. We have also reduced the cost of our funding sources simultaneously with federal funds rate decisions during 2024. The yield on interest-earning assets increased 16 basis points to 5.31% for the three months ended March 31, 2025, compared to 5.15% for the same period of 2024, a result of the increased rate environment over the past year. Our cost of funds decreased 12 basis points to 2.83%for the three months ended March 31, 2025, compared to 2.95% for the same period of 2024.
Current report
Average interest-earning assets increased $69.8 million, or 3%, to $2.15 billion at March 31, 2025 compared to $2.08 billion at March 31, 2024. This increase was primarily related to an increase in interest-bearing deposits held at other financial institutions. Total interest income increased $1.7 million, or 6%, to $28.6 million for the three months ended March 31, 2025 compared to $26.8 million for the three months ended March 31, 2024. The increase in our average volume was the main driver to the increase in our interest income, contributing $1.9 million of the increase for the three months ended March 31, 2025 compared to the year ago quarter, offset by a decrease in the average rate which decreased interest income $164 thousand.
Current report
Average interest-earning deposits at other financial institutions, consisting primarily of excess cash reserves maintained at the Federal Reserve, increased $60.3 million to $87.8 million for the quarter ended March 31, 2025, compared to $27.5 million for the quarter ended March 31, 2024. The yield on average interest-earning deposits at other financial institutions decreased 99 basis points to 4.45% for the quarter ended March 31, 2025 compared to the same period of 2024, primarily as a result of the Federal Open Market Committee's decision to decrease its targeted federal funds rate 100 basis points during 2024.
Current report
Total average interest-bearing liabilities increased $48.6 million to $1.58 billion at March 31, 2025 compared to $1.53 billion at March 31, 2024. Conversely, interest expense decreased $530 thousand to $13.5 million for the three months ended March 31, 2025 compared to $14.0 million for the three months ended March 31, 2024. The decrease in the average rate contributed $439 thousand to the decrease in interest expense for the first quarter of 2025 compared to the same period of 2024.
Current report
Total average interest-bearing deposits increased $107.3 million to $1.51 billion at March 31, 2025 compared to $1.41 billion at March 31, 2024. Interest expense on deposits increased $251 thousand to $12.8 million for the three months ended March 31, 2025 compared to $12.5 million for the three months ended March 31, 2024, primarily a result of the increase in average total interest-bearing deposits for the three months ended March 31, 2025. Average noninterest-bearing deposits decreased $25.5 million, or 7%, to $354.6 million for the three months ended March 31, 2025, compared to $380.1 million for the three months ended March 31, 2024, as customers continue to move excess funds from noninterest-bearing to interest-bearing deposit products. Average interest checking deposits increased $117.2 million to $617.1 million for the three months ended March 31, 2025 compared to $499.9 million for the three months ended March 31, 2024. Average savings and money market deposits increased $90.1 million to $390.5 million for the three months ended March 31, 2025 compared to $300.4 million for the same period of 2024. Average time deposits decreased $44.5 million to $256.4 million for the three months ended March 31, 2025 compared to $300.9 million for the three months ended March 31, 2024. Average wholesale deposits decreased $55.5 million to $249.9 million for the three months ended March 31, 2025 compared to $305.4 million for the three months ended March 31, 2024.
Current report
Average other borrowed funds decreased $57.8 million to $50.0 million for the quarter ended March 31, 2025, compared to $107.8 million for the quarter ended March 31, 2024. Interest expense on other borrowed funds decreased
Current report
$769 thousand for the quarter ended March 31, 2025 to $468 thousand compared to $1.2 million for the same period of 2024.
Current report
$70 thousand for the three months ended March 31, 2025 compared to $190 thousand for same period of 2024, the decrease a result of our surrendered BOLI policies which occurred during the first quarter of 2024.
Current report
Salaries and benefits expense increased $252 thousand to $4.8 million for the three months ended March 31, 2025 compared to $4.5 million for the same period of 2024, which was primarily related to an increase in payroll taxes and other incentive accruals during the first quarter of 2025. Internet banking and software expense increased $131 thousand to $825 thousand for the three months ended March 31, 2025, compared to $694 thousand for the same period of 2024.
Current report
We recorded a provision for income tax expense of $1.2 millionfor the three months ended March 31, 2025, compared to theprovision for income tax expense of $3.2 million for the three months ended March 31, 2024. Income tax expense for the three months ended March 31, 2024 includes $2.4 million in taxes and penalties related to the surrender of our BOLI policies. These were in part offset by discrete tax benefits recorded as a result of nonqualified option exercises that occurred during the quarter ended March 31, 2024.
Current report
Loans receivable, net of deferred fees, were $1.88 billion at March 31, 2025 and $1.87 billion at December 31, 2024, an increase of $11.9 million, or 1%.
Current report
Commercial and industrial loans increased $46.7 million to $383.3 million at March 31, 2025, an increase of 14%, from $336.7 million at December 31, 2024. Consumer real estate loans decreased $10.3 million to $315.0 million at March 31, 2025, from $325.3 million at December 31, 2024, primarily a result of principal repayments during the first quarter of 2025.
Current report
(2). Bank-owned principal is not adjusted for deferred fees and costs.
Current report
Total deposits increased $36.0 million, or 2%, to $1.91 billion at March 31, 2025 from $1.87 billion at December 31, 2024. Noninterest-bearing deposits were $367.1 million at March 31, 2025, or 19.3% of total deposits. Interest checking deposits decreased $6.0 million to $617.8 million at March 31, 2025 compared to $623.8 million at December 31, 2024. Savings and money market deposits increased $13.7 million, or 4%, to $396.8 million at March 31, 2025 compared to $383.1 million at December 31, 2024. Time deposits increased $26.8 million, or 11%, to $274.9 million at March 31, 2025 from $248.2 million at December 31, 2024.
Current report
Total wholesale funding (including wholesale deposits and FHLB advances) remained unchanged at $299.9 million, at March 31, 2025 compared to December 31, 2024.
Current report
(Dollars in millions)
Removed paragraphs (47)
Previous report
On August 31, 2021, we announced that the Bank made an investment in Atlantic Coast Mortgage, LLC ("ACM") for $20.4 million to obtain a 28.7% ownership interest in ACM. The Bank provides a warehouse lending facility to ACM, which includes a construction-to-permanent financing line, and has developed portfolio mortgage products to diversify our held for investment loan portfolio.
Previous report
On December 15, 2022, the Company announced that the Board of Directors approved a five-for-four split of the Company's common stock in the form of a 25% stock dividend for shareholders of record on January 9, 2023, payable on January 31, 2023. Earnings per share and all other per share information reflected herein have been adjusted for the five-for-four split of the Company's common stock for comparative purposes.
Previous report
Allowance for Credit Losses - Loans & Unfunded Commitments
Previous report
Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. We record a reserve for unfunded commitments on off-balance sheet credit exposures through a charge to provision for credit loss expense in our Consolidated Statement of Income. The reserve for unfunded commitments is estimated by call report code segmentation as of the valuation date under the CECL model using the same methodologies as portfolio loans taking utilization rates into consideration. The reserve for unfunded commitments is reflected as a liability on our Consolidated Statement of Condition.
Previous report
Collateral Dependent Financial Assets
Previous report
Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where we have determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and we expect repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the net present value from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
Previous report
Allowance for Credit Losses - Securities
Previous report
We evaluate our available-for-sale and held-to-maturity debt securities portfolios for expected credit losses as of the valuation date under ASC 326. For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell, the security before recovery of our amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income during the current period. For available-for-sale debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other driving factors. If our assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an ACL is recorded for the credit loss (which represents the difference between the expected cash flows and amortized cost basis), limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.
Previous report
The entire amount of an impairment loss is recognized in earnings only when: (1) we intend to sell the security; or (2) it is more likely than not that we will have to sell the security before recovery of our amortized cost basis; or (3) we do not expect to recover the entire amortized cost basis of the security. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders' equity as comprehensive income, net of deferred taxes.
Previous report
Changes in the ACL are recorded as a provision for (or reversal of) credit losses. Losses are charged against the ACL when we believe the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment not recorded through an ACL is recognized in other comprehensive income as a noncredit-related impairment.
Previous report
As part of our estimation process, we have made a policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in other assets in the Consolidated Statement of Condition. Available-for-sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status. Accordingly, we do not recognize an ACL against accrued interest receivable. This approach is consistent with our nonaccrual policy implemented for our loan portfolio.
Previous report
We separately evaluate our held-to-maturity investment securities for any credit losses. If we determine that a security indicates evidence of deteriorated credit quality, the security is individually-evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis. As of September 30, 2024, wehad one security classified as held-to-maturity with an amortized cost basis of $265 thousand with the remainder of the securities portfolio held as available-for-sale.
Previous report
Fair Value Measurements
Previous report
We determine the fair values of financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Our investment securities available-for-sale are recorded at fair value using reliable and unbiased evaluations by an industry-wide valuation service. This service uses evaluated pricing models that vary based on asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.
Previous report
We recorded net income of $4.7 million, or $0.25 diluted earnings per share, for the three months ended September 30, 2024, compared to net income of $4.0 million, or $0.22 diluted earnings per share, for the three months ended September 30, 2023, an increase of $630 thousand, or 16%. Net interest income increased $878 thousand, or 7%, to $14.2 million for the three months ended September 30, 2024, compared to $13.3 million for the same period of 2023. We released provisioning for credit losses totaling $200 thousand for the three months ended September 30, 2024, compared to a release of reserves for credit losses totaling $729 thousand for the three months ended September 30, 2023. Noninterest income was $815 thousand and $225 thousand for the three months ended September 30, 2024 and 2023, respectively. Noninterest expense was $9.2 million for the three months ended September 30, 2024, compared to $9.0 million for the three months ended September 30, 2023, a increase of $147 thousand, or 2%.
Previous report
Net interest income for the nine months ended September 30, 2024 was $40.7 million, compared to $41.7 million for the same period in 2023, a decrease of $1.1 million, or 3%. Provision for credit losses for the nine months ended September 30, 2024 was $6 thousand, compared to $132 thousand for the same period of 2023. Non-interest income was $2.1 million compared to a loss of $3.5 million for the nine months ended September 30, 2024 and 2023, respectively. Noninterest expense was $26.8 million and $27.3 million for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $444 thousand, or 2%.
Previous report
Diluted commercial bank operating earnings per share for the three months ended September 30, 2024 and September 30, 2023 were each $0.25 and $0.22, respectively. For the nine months ended September 30, 2024 and 2023, diluted commercial bank operating earnings per share were $0.68 and $0.69, respectively.
Previous report
Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The following table presents average balance information, interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended September 30, 2024 and 2023.
Previous report
The level of net interest income is affected primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates.
Previous report
Net interest income totaled $14.2 million, an increase of $878 thousand, or 7%, for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase in net interest income is primarily a result of an increase in total interest income of $1.8 million, or 7%, for the third quarter of 2024 compared to the third quarter of 2023. Loan interest income increased $2.1 million, or 8%, to $27.4 million for the three months ended September 30, 2024, compared to $25.2 million for the three months ended September 30, 2023. Interest expense increased $926 thousand for the three months ended September 30, 2024 as compared to the same period of 2023.
Previous report
Average earning assets decreased $72.8 million to $2.14 billion during the third quarter of 2024 as compared to $2.21 billion for the same period of 2023, which was primarily related to the sales of investment securities available-for-sale that were completed during the first and fourth quarters of 2023, decreasing the average balances of our investment securities by $76.4 million.
Previous report
Interest income for the three months ended September 30, 2024 increased $1.8 million, or 7%, to $29.2 million, from $27.4 million for the three months ended September 30, 2023. Loan interest income during the third quarter of 2024 increased $2.1 million, or 8%, as compared to the year ago quarter due to both an increase in loan volume and an increase in yields earned on the loan portfolio. Income from investment securities decreased $258 thousand for the three months ended September 30, 2024 compared to the same period of 2023, primarily as a result of the aforementioned sales of investment securities executed during 2023. Interest income from deposits at other financial institutions decreased $74 thousand to $802 thousand for the third quarter of 2024 as compared to the third quarter of 2023, which was primarily due to lower average balances.
Previous report
Average interest-bearing deposits decreased $111.2 million to $1.50 billion for the three months ended September 30, 2024 compared to $1.61 billion for the three months ended September 30, 2023, primarily as a result of a decrease in wholesale deposits. Average wholesale deposits decreased $116.8 million to $249.9 million for the three months ended September 30, 2024 compared to $366.7 million for the same period in 2023. Average non-interest-bearing deposits decreased $67.2 million to $358.6 million for the three months ended September 30, 2024 compared to $425.8 million for the same period in 2023. Average other borrowed funds, which primarily include federal funds purchased and advances from the Federal Home Loan Bank of Atlanta ("FHLB"), increased $47.9 million to $57.0 million for the three months ended September 30, 2024 compared to $9.1 million for the three months ended September 30, 2023.
Previous report
Interest expense for the three months ended September 30, 2024 increased $926 thousand to $15.0 million, or 7%, from $14.1 million for the three months ended September 30, 2023. Deposit interest expense for the third quarter of 2024 increased $400 thousand compared to the year ago quarter primarily as a result of increased interest rates on interest-bearing deposits. Interest expense on other borrowed funds increased $528 thousand for the three months ended September 30, 2024 compared to the same period in 2023.
Previous report
Our net interest margin, on a tax equivalent basis, for the three months ended September 30, 2024 and 2023 was 2.64% and 2.39%, respectively, an increase of 25 basis points, or 10%. The yield on interest-earning assets increased 51 basis points to 5.46% for the three months ended September 30, 2024, compared to 4.95% for the same period of 2023. The average yield of the loan portfolio for the three months ended September 30, 2024 and 2023 was 5.83% and 5.40%, respectively, an increase of 43 basis points. The cost of interest-bearing deposits increased 37 basis points to 3.77% for the three months ended September 30, 2024, compared to 3.40% for the same period of 2023, which was primarily attributable to the repricing of our interest-bearing deposits due to higher interest rates. Cost of deposits (which includes non-interest-bearing deposits) was 3.04% for the three months ended September 30, 2024 compared to 2.69% for the three months ended September 30, 2023. Cost of other borrowed funds increased to 3.93% for the three months ended September 30, 2024 compared to 1.53% for the three months ended September 30, 2023.
Previous report
For the Nine months ended September 30, 2024 and 2023
Previous report
Rate and Volume Analysis
Previous report
For the Nine months ended September 30, 2024 and 2023
Previous report
(2)The average yields for investment securities are reported on a fully taxable-equivalent basis at a rate of 22% for September 30, 2024 and September 30, 2023.
Previous report
Net interest income for the nine months ended September 30, 2024 and September 30, 2023, was $40.7 million and $41.7 million, respectively, a decrease of $1.1 million, or 3%. The decrease in net interest income is primarily due to an increase in funding costs, which have increased precipitously as a result of Federal Reserve monetary policy, coupled with the need to meet intense competition from market area banks, brokerages, other financial institutions, and the U.S. Treasury.
Previous report
Average earning assets decreased $91.4 million, to $2.12 billion, during the nine months ended September 30, 2024 as compared to $2.21 billion for the same period of 2023, which is primarily related to our sales of investment securities available-for-sale completed during 2023.
Previous report
Interest income for the nine months ended September 30, 2024 increased $4.1 million to $84.0 million from $80.0 million for the nine months ended September 30, 2023. Loan interest income for the nine months ended September 30, 2024 increased $5.5 million as compared to the same nine month period of 2023, primarily as a result of the increase in yields earned on the loan portfolio. Income from investment securities decreased $1.0 million for the nine months ended September 30, 2024 compared to the same period of 2023, primarily as a result of the sales of investment securities executed during 2023. Income from deposits at other financial institutions decreased $447 thousand year-over-year, as excess liquidity was used to fund loan originations and paydown costly wholesale fundings.
Previous report
Total average interest-bearing deposits increased $66.5 million to $1.44 billion for the nine months ended September 30, 2024 compared to $1.51 billion for the nine months ended September 30, 2023. Average noninterest-bearing deposits decreased $61.0 million to $372.3 million for the nine months ended September 30, 2024 compared to $433.3 million for the same period of 2023. Average wholesale deposits decreased $63.9 million to $268.3 million for the nine months ended September 30, 2024 compared to $332.2 million for the same period in 2023. Average other borrowed funds, which include federal funds purchased and FHLB advances, decreased $10.3 million to $88.1 million for the nine months ended September 30, 2024, compared to $98.4 million for the same period of 2023.
Previous report
Interest expense for the nine months ended September 30, 2024 increased $5.1 million to $43.4 million from $38.2 million for the nine months ended September 30, 2023. Deposit interest expense for the year-to-date period of 2024 increased $5.0 million compared to the year ago nine month period primarily as a result of increased interest rates paid on deposits.
Previous report
Our net interest margin for the nine months ended September 30, 2024 and 2023 was 2.57% and 2.53% respectively. The increase in net interest margin is a result of continued improvement in the yields earned on our loan portfolio and our management to control funding costs. The yield on interest-earning assets increased 46 basis points to 5.29% for the nine months ended September 30, 2024, compared to 4.83% for the same period of 2023. The average yield of the loan portfolio for the nine month periods ended September 30, 2024 and 2023 was 5.65% and 5.29%, respectively, an increase of 36 basis points. The cost of interest-bearing deposits increased 60 basis points to 3.67% for the nine months ended September 30, 2024, compared to 3.07% for the same period of 2023, which was primarily attributable to the repricing of our interest-bearing deposits due to higher interest rates. Cost of deposits (which includes noninterest-bearing deposits) was 2.92% for the nine months ended September 30, 2024 compared to 2.38% for the same nine month period of 2023. Cost of other borrowed funds increased 58 basis points to 4.47% for the nine months ended September 30, 2024 compared to 3.89% for the nine months ended September 30, 2023.
Previous report
Fee income from loans was $54 thousand for the three months ended September 30, 2024, compared to $107 thousand for the same period of 2023, which included income from back-to-back loan swap transactions entered into during 2023. Service charges on deposits were $301 thousand for the three months ended September 30, 2024, compared to $284 thousand for the same period of 2023. Income from BOLI decreased to $70 thousand for the three months ended September 30, 2024 as compared to $373 thousand for the three months ended September 30, 2023, a result of surrendering our BOLI policies during the first quarter of 2024.
Previous report
Fee income from loans was $141 thousand for the nine months ended September 30, 2024, compared to $352 thousand for the same period of 2023. Service charges on deposits were $841 thousand for the nine months ended
Previous report
Salaries and benefits expense decreased $415 thousand to $4.9 million for the three months ended September 30, 2024 compared to $5.3 million for the same period in 2023, a result of reduced staffing through process improvement resulting from the use of improved technologies. Occupancy expense decreased by $82 thousand, primarily as a result of the office space reduction efforts that were completed during the fourth quarter of 2023. These decreases were partially offset by an increase in internet banking and software expense of $46 thousand for the three months ended September 30, 2024 to $706 thousand, as compared to $660 thousand for the same period in 2023, a result of the implementation of enhanced customer software solutions. In addition, loan related expenses increased $430 thousand for the three months ended September 30, 2024 compared to the same period in 2023, a result of recovered loan legal expenses recorded during 2023.
Previous report
Noninterest expense was $26.8 million and $27.3 million for the nine months ended September 30, 2024 and 2023, respectively. Salaries and benefits expense decreased $1.3 million to $14.1 million for the nine months ended September 30, 2024 compared to $15.4 million for the same period in 2023, which was primarily related to reduced staffing for the nine months ended September 30, 2024 compared to the same period of 2023. Occupancy expense decreased by $283 thousand for the nine months ended September 30, 2024 as compared to the same period of 2023, which was primarily related to the office space reduction initiatives that were completed during the fourth quarter of 2023. These decreases were partially offset by an increase in internet banking and software expense of $326 thousand for the nine months ended September 30, 2024 to $2.1 million, compared to $1.8 million for the same period in 2023, a result of the implementation of enhanced customer software solutions during 2023.
Previous report
We recorded a provision for income tax expense of $1.4 million and $1.2 million for the three months ended September 30, 2024 and 2023, respectively. The effective tax rate for the three months ended September 30, 2024 and 2023 was 22.6% and 22.9%, respectively.
Showing the first 40 of 47 passages. Open the source sections for the rest.
Reworded paragraphs (56)
Previous wording
The following presents management’s discussion and analysis of our consolidated financial condition at September 30, 2024 and December 31, 2023 and the results of our operations for the three and nine months ended September 30, 2024 and 2023. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. Results of operations for the three and nine month periods ended September 30, 2024 are not necessarily indicative of the results of operations for the balance of 2024, or for any other period. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.
Current wording
The following presents management’s discussion and analysis of our consolidated financial condition at March 31, 2025 and December 31, 2024 and the results of our operations for the three months ended March 31, 2025 and 2024. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024. Results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results of operations for the balance of 2025, or for any other period. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.
Previous wording
•changes in our liquidity requirements could be adversely affected by changes in its assets and liabilities;
Current wording
•changes in our liquidity requirements could be adversely affected by changes in our assets and liabilities;
Previous wording
•Our involvement, from time to time, in legal proceedings and examination and remedial actions by regulators; and
Current wording
•our involvement, from time to time, in legal proceedings and examination and remedial actions by regulators;
Previous wording
•geopolitical conditions, including acts or threats of terrorism, or actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;
Current wording
•geopolitical conditions, including trade restrictions and tariffs, and acts or threats of terrorism, or actions taken by the United States or other governments in response to trade restrictions and tariffs, and acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad; and
Previous wording
Net interest income is our primary source of revenue. We define revenue as net interest income plus noninterest income. We manage our balance sheet and interest rate risk exposure to maximize, and concurrently stabilize, net interest income. We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities. We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it entirely. In addition to managing interest rate risk, we also analyze our loan portfolio for exposure to credit risk. Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit. In addition to net interest income, noninterest income is a complementary source of revenue for us and includes, among other things, service charges on deposits and loans, income from minority membership interest in ACM, merchant services fee income, insurance commission income, income from bank owned life insurance ("BOLI"), and gains and losses on sales of investment securities available-for-sale.
Current wording
Net interest income is our primary source of revenue. We define revenue as net interest income plus noninterest income. We manage our balance sheet and interest rate risk exposure to maximize, and concurrently stabilize, net interest income. We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities. We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it entirely. In addition to managing interest rate risk, we also analyze our loan portfolio for exposure to credit risk. Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit. In addition to net interest income, noninterest income is a complementary source of revenue for us and includes, among other things, service charges on deposits and loans, income from our minority membership interest in Atlantic Coast Mortgage, LLC ("ACM"), merchant services fee income, insurance commission income, income from bank owned life insurance ("BOLI"), and gains and losses on sales of investment securities available-for-sale.
Previous wording
The accounting principles we apply under U.S generally accepted accounting principles ("GAAP") are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters. Management must use assumptions, judgments and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such judgments, assumptions and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.
Current wording
The accounting principles we apply under the accounting principles generally accepted in the United States of America ("GAAP") are complex and require management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions, and estimates. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.
Previous wording
The accounting policies we view as critical are those relating to judgments, assumptions and estimates regarding the determination of the allowance for credit losses - loans & reserve for unfunded commitments, and fair value measurements.
Current wording
The accounting policies we view as critical are those relating to judgments, assumptions, and estimates regarding the determination of the allowance for credit losses on our loan portfolio.
Previous wording
We maintain the allowance for credit losses ("ACL") at a level that represents management’s best estimate of expected losses in our loan portfolio. We adopted the provisions of the current expected credit losses ("CECL") accounting standard as of January 1, 2023 in accordance with the required implementation date and recorded the impact of the adoption to retained earnings, net of deferred income taxes, as required by the standard. Prior to the adoption of CECL, we utilized an incurred loss model to derive our best estimate of the ACL.
Current wording
We maintain the allowance for credit losses ("ACL") at a level that represents management’s best estimate of expected losses in our loan portfolio.
Previous wording
Accounting Standards Codification ("ASC") 326 requires that an estimate of CECL be immediately recognized and reevaluated over the contractual life of the financial asset. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan portfolio. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries are recorded to the extent they do not exceed the aggregate of amounts previously and expected to be charged-off.
Current wording
Accounting Standards Codification ("ASC") 326 requires that an estimate of expected credit losses be immediately recognized and reevaluated over the contractual life of the financial asset. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan portfolio. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Recoveries are recorded to the extent they do not exceed the aggregate of amounts previously charged-off.
Previous wording
Reserves on loans that do not share risk characteristics are evaluated on an individual basis. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. The remainder of the portfolio, representing all loans not evaluated individually for impairment, is segmented based on call report code and processed through a cash flow valuation model. In particular, loan-level probability of default ("PD") and severity (also referred to as loss given default ("LGD")) is applied to derive a baseline expected loss as of the valuation date. These expected default and severity rates, which are regression-derived and based on peer historical loan-level performance data, are calibrated to incorporate our reasonable and supportable forecast of future losses as well as any necessary qualitative adjustments.
Current wording
Reserves on loans that do not share risk characteristics are evaluated on an individual basis. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. The remainder of the portfolio, representing all loans not evaluated individually, is segmented based on call report code and processed through a non-discounted cash flow valuation model. In particular, loan-level probability of default ("PD") and severity (also referred to as loss given default ("LGD")) is applied to derive a baseline expected loss as of the valuation date. These expected default and severity rates, which are regression-derived and based on peer historical loan-level performance data, are calibrated to incorporate our reasonable and supportable forecast of future losses as well as any necessary qualitative adjustments.
Previous wording
Our methodology utilized in the estimation of the ACL, which is performed at least quarterly, is designed to be dynamic and responsive to changes in our loan portfolio credit quality, composition, and forecasted economic conditions. The review of the reasonableness and appropriateness of the ACL is reviewed by the ACL Committee for approval as of the valuation date. Additionally, information is provided to the Board of Directors on a quarterly basis along with our consolidated financial statements.
Current wording
The determination of the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires us to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes. Changes in conditions, including unforeseen events, changes in asset-specific risk characteristics, and other economic factors, both within and outside our control, may indicate the need for an increase or decrease in the ACL on loans. While we make every effort to utilize the best information available in making our assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways. Further, changes in factors and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others. Our methodology utilized in the estimation of the ACL, which is performed at least quarterly, is designed to be dynamic and responsive to changes in our loan portfolio credit quality, composition, and forecasted economic conditions. The review of the reasonableness and appropriateness of the ACL is reviewed by the ACL Committee for approval as of the valuation date. Additionally, information is provided to the Board of Directors on a quarterly basis along with our consolidated financial statements.
Previous wording
Credit losses are an inherent part of our business and, although we believe the methodologies for determining the ACL and the current level of the allowance and reserve on unfunded commitments are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, and would negatively impact earnings.
Current wording
Credit losses are an inherent part of our business and, although we believe the methodologies for determining the ACL and the current level of the allowance are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, and would negatively impact earnings.
Previous wording
Results of Operations— Three and Nine Months Ended September 30, 2024 and 2023
Current wording
Results of Operations— Three Months Ended March 31, 2025 and 2024
Previous wording
For the nine months ended September 30, 2024, we recorded net income of $10.2 million, or $0.55 diluted earnings per share, compared to net income of $8.9 million, or $0.49 diluted earnings per share for the nine months ended September 30, 2023. Net income for the nine months ended September 30, 2024 includes the surrender of certain BOLI policies with an aggregate cash surrender value of $48.0 million. Upon the surrender, we received a cash payout and were required to accrue additional income tax on the appreciation of those policies which had previously been treated as tax-exempt income. This resulted in additional statutory income tax expense of $1.6 million and tax penalties of $722 thousand. The tax penalties related to the surrender of the BOLI were recorded in income tax expense. Additionally, net income for the nine months ended September 30, 2023 included losses on the sale of available-for-sale investment securities totaling $4.6 million.
Current wording
For the three months ended March 31, 2025, we recorded net income of $5.2 million, or $0.28 diluted earnings per share, compared to net income of $1.3 million, or $0.07 diluted earnings per share for the three months ended March 31, 2024, an increase of $3.8 million. Net income for the three months ended March 31, 2024 included the surrender of certain BOLI policies with an aggregate cash surrender value of $48.0 million. Upon the surrender, we received a cash payout and were required to accrue additional income tax on the appreciation of those policies which had previously been treated as tax-exempt income. This resulted in additional statutory income tax expense of $1.6 million and tax penalties of $722 thousand. The tax penalties related to the surrender of the BOLI were recorded in income tax expense.
Previous wording
The annualized return on average assets for the three months ended September 30, 2024 and 2023 was 0.85% and 0.70%, respectively. The annualized return on average equity for the three months ended September 30, 2024 and 2023 was 8.15% and 7.57%, respectively.
Current wording
The annualized return on average assets for the three months ended March 31, 2025 and 2024 was 0.94% and 0.25%, respectively. The annualized return on average equity for the three months ended March 31, 2025 and 2024 was 8.61% and 2.44%, respectively.
Previous wording
Commercial bank operating earnings, which exclude the nonrecurring taxes on the surrender of our BOLI policies recorded during the first quarter of 2024 and the after-tax losses on the sale of investment securities available-for-sale recorded during the first quarter 2023, for the three months ended September 30, 2024 and September 30, 2023 were $4.7 million and $4.0 million, respectively. For the nine months ended September 30, 2024 and September 30, 2023, commercial bank operating earnings were $12.6 million and $12.5 million, respectively.
Current wording
Commercial bank operating earnings, which exclude the above mentioned nonrecurring taxes on the surrender of our BOLI policies, for the three months ended March 31, 2025 and March 31, 2024 were $5.2 million and $3.7 million, respectively, an increase of $1.4 million, or 38%. Diluted commercial bank operating earnings per share for the three months ended March 31, 2025 and March 31, 2024 were $0.28 and $0.20, respectively.
Previous wording
The following table presents average balance information, interest income, interest expense and the corresponding average yields earned and rates paid for the nine months ended September 30, 2024 and 2023.
Current wording
The following table presents average balance information, interest income, interest expense and the corresponding average yields earned and rates paidfor the three months ended March 31, 2025 and 2024.
Previous wording
(1)Non-accrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the quarters presented. Net loan fees and late charges included in interest income on loans totaled $448 thousand and $612 thousand for the quarters ended September 30, 2024 and 2023, respectively.
Current wording
(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the quarters presented. Net loan fees and late charges included in interest income on loans totaled $670 thousandand $404 thousandfor the quarters ended March 31, 2025 and 2024, respectively.
Previous wording
(1)Non-accrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the years presented.
Current wording
(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the years presented.
Previous wording
Average balances of nonperforming loans, which include nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin in 2024 and 2023.
Current wording
Average loans receivable increased $25.7 million to $1.87 billion for the three months ended March 31, 2025, compared to $1.84 billion for the three months ended March 31, 2024. The yield on average loans increased 19 basis points to 5.69% for the three months ended March 31, 2025. The increase in our average loan yields was primarily a result of the repricing of the loan portfolio at higher interest rates. Average balances of nonperforming loans, which consist of nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin in 2025 and 2024.
Previous wording
We recorded a release of provision for credit losses totaling $200 thousand and $729 thousand for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, provision for credit losses totaled $6 thousand and $132 thousand, respectively. The allowance for credit losses was $19.1 million and $18.9 million at September 30, 2024 and at December 31, 2023, respectively. Our allowance for credit losses on loans as a percent of total loans, net of deferred fees and costs, was 1.02 and 1.03% at September 30, 2024 and December 31, 2023, respectively.
Current wording
We recorded a provision for credit losses of $200 thousand for the three months ended March 31, 2025 and $0 for the three months ended March 31, 2024. The allowance for credit losses was$18.4 million and $18.1 million at March 31, 2025 and December 31, 2024, respectively. Our allowance for credit losses as a percent of total loans, net of deferred fees and costs, was 0.98% and 0.97% at March 31, 2025 and December 31, 2024, respectively.
Previous wording
We lend to well-established and relationship-driven borrowers which has contributed to our track record of low historical credit losses. We continue to maintain our disciplined credit guidelines during the current rate environment. We proactively monitor the impact of interest rates on our adjustable loans as the industry navigates through this economic cycle of increased inflation and higher interest rates. Nonperforming loans at September 30, 2024 totaled $3.6 million, or 0.16% of total assets, compared to $1.8 million, or 0.08%, of total assets at December 31, 2023. We had no other real estate owned at September 30, 2024 and at December 31, 2023. We recorded net recoveries of $63 thousand during the third quarter of 2024 compared to net recoveries of $7 thousand for same period of 2023. For the nine months ended September 30, 2024 and 2023, we recorded net recoveries of $98 thousand and net charge-offs of $326 thousand, respectively.
Current wording
We lend to well-established and relationship-driven borrowers which has contributed to our track record of low historical credit losses. We continue to maintain our disciplined credit guidelines during the current rate environment. We proactively monitor the impact of interest rates on our adjustable loans as the industry navigates through this economic cycle of increased inflation and higher interest rates. Nonperforming loans, net of fees, at March 31, 2025 totaled $10.7 million, or 0.48% of total assets, compared to $12.8 million, or 0.58%, of total assets at December 31, 2024. We had no other real estate owned at March 31, 2025 and December 31, 2024, respectively. We recorded net recoveries of $139 thousand and $30 thousand for the quarters ended March 31, 2025 and 2024, respectively.
Previous wording
The following table provides detail for noninterest incomefor the three and nine months ended September 30, 2024 and 2023.
Current wording
The following table provides detail for noninterest incomefor the three months ended March 31, 2025 and 2024.
Previous wording
Noninterest income includes service charges on deposits and loans, loan swap fee income, income from our membership interest in ACM and other investments, income from our BOLI policies, and other fee income, and continues to supplement our operating results. Non-interest income was $815 thousand for the three months ended September 30, 2024 compared to $225 thousand for same period of 2023. For the nine months ended September 30, 2024, we recorded noninterest income of $2.1 million compared to a loss of $3.5 million for same period of 2023.
Current wording
Noninterest income includes service charges on deposits and loans, loan swap fee income, income from our membership interest in ACM and other investments, income from our BOLI policies, and other fee income, and continues to supplement our operating results. For the three months ended March 31, 2025 and 2024, we recorded noninterest income of$671 thousand and$395 thousand, respectively, an increase of $276 thousand, or 70%.
Previous wording
We recorded income from our minority membership interest in ACM, totaling $278 thousand and $426 thousand for the three and nine months ended September 30, 2024, compared to a loss of $650 thousand and a loss of $1.4 million for the three and nine months ended September 30, 2023.
Current wording
We recorded income from our minority membership interest in ACM totaling$141 thousandfor the three months ended March 31, 2025, compared to a loss of $203 thousand for same period of 2024.
Previous wording
September 30, 2024, compared to $731 thousand for the same period of 2023, an increase of $110 thousand, or 15%. Income from BOLI decreased to $326 thousand for the nine months ended September 30, 2024 as compared to $1.1 million for the nine months ended September 30, 2023, a result of surrendering our BOLI policies during the first quarter of 2024.
Current wording
Fee income from loanswas $77 thousand for the quarter ended March 31, 2025, compared to $49 thousand for the same period of 2024. Service charges on deposits were$270 thousand for the quarter ended March 31, 2025, compared to $261 thousand for the same period of 2024, an increase of $9 thousand, or 3%. Income from BOLI decreased to
Previous wording
The following table reflects the components of noninterest expense for the three and nine months ended September 30, 2024 and 2023.
Current wording
The following table reflects the components of noninterest expense for the three months ended March 31, 2025 and 2024.
Previous wording
Noninterest expense includes, among other things, salaries and benefits, occupancy and equipment costs, professional fees, data processing, insurance and miscellaneous expenses. Noninterest expense was $9.2 million and $9.0 million for the three months ended September 30, 2024 and 2023, respectively.
Current wording
Noninterest expense includes, among other things, salaries and benefits, occupancy and equipment costs, professional fees, data processing, insurance and miscellaneous expenses. Noninterest expense was $9.1 millionand $8.6 million for the three months ended March 31, 2025 and 2024, respectively.
Previous wording
At September 30, 2024, total assets were $2.29 billion, an increase of 5%, or $102.7 million, from $2.19 billion at December 31, 2023. Investment securities were $165.3 millionat September 30, 2024, a decrease of $6.6 million, from $171.9 million at December 31, 2023. Total deposits increased 6%, or $115.5 million, to $1.96 billion at September 30, 2024, from $1.85 billion at December 31, 2023. From time to time, we may utilize other funding sources such as federal funds purchased and FHLB advances as an additional funding source for the Bank. We had no federal funds purchased at September 30, 2024 and December 31, 2023. The Bank had FHLB advances outstanding of $50.0 million and $85.0 million at September 30, 2024 and December 31, 2023, respectively. Subordinated debt, net of unamortized issuance costs, totaled$19.7 million and $19.6 million at September 30, 2024 and December 31, 2023.
Current wording
At March 31, 2025, total assets were $2.24 billion, an increase of $41.8 million, from $2.20 billion at December 31, 2024. Investments in debt securities were $159.0 million at March 31, 2025, an increase of$2.2 million, from $156.7 million at December 31, 2024. Total deposits increased $36.0 million, or 2%, to $1.91 billion at March 31, 2025, from $1.87 billion at December 31, 2024. We had Federal Home Loan Bank of Atlanta ("FHLB") advances outstanding totaling $50.0 millionat each of March 31, 2025 and December 31, 2024. Subordinated debt, net of unamortized issuance costs, totaled$18.7 million at each of March 31, 2025 and December 31, 2024.
Previous wording
Commercial real estate loans totaled $1.06 billion and $1.09 billion at September 30, 2024 and December 31, 2023, and were approximately 57% and 60% of the total loans receivable at such dates, respectively. Owner-occupied commercial real estate loans were $196.3 million at September 30, 2024 compared to $212.9 million at December 31, 2023. Nonowner-occupied commercial real estate loans were $866.7 million at September 30, 2024 compared to $878.7 million at December 31, 2023. Commercial construction loans totaled $173.8 million at September 30, 2024, compared to $148.0 million at December 31, 2023 and comprised of 9% and 8% of total loans receivable at such dates, respectively. Our regulatory commercial real estate concentration (which includes nonowner-occupied real estate and construction loans) was 385% of our total risk-based capital at September 30, 2024. Our commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of our portfolio in a disciplined manner. We have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Additional information on the stratification of these portfolio segments can be found below under "Asset Quality".
Current wording
Commercial real estate loans totaled $1.01 billion and $1.04 billion at March 31, 2025 and December 31, 2024, respectively, and were approximately 54%and 56% of the total loans receivable at such dates, respectively. Owner-occupied commercial real estate loans were $182.5 million at March 31, 2025 compared to $187.8 million at December 31, 2024. Nonowner-occupied commercial real estate loans were $828.2 millionat March 31, 2025 compared to $850.1 million at December 31, 2024. Commercial construction loans totaled $165.7 millionat March 31, 2025, compared to $162.4 million at December 31, 2024 and comprisedof 9%of total loans receivable at such dates, respectively. Our regulatory commercial real estate concentration (which includes nonowner-occupied real estate and construction loans) was 357% of our total risk-based capital at March 31, 2025. Our commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage the portfolio in a disciplined manner and have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Additional information on the stratification of these portfolio segments can be found below under "Asset Quality".
Previous wording
Nonperforming loans, defined as nonaccrual loans and loans contractually past due 90 days or more as to principal or interest and still accruing, were$3.6 million and $1.8 million at September 30, 2024 and December 31, 2023, respectively, anincrease of $1.8 million. Loans that we have classified as nonperforming are a result of customer specific deterioration, mostly financial in nature, that are not a result of economic, industry, or environmental causes that we might see as a pattern for possible future losses within our loan portfolio. For each of our criticized assets, we individually evaluate each loan, generally through the performance of a collateral analysis to determine the amount of allowance required. As a result of the analysis completed, we had specific reserves totaling $802 thousandand $676 thousand at September 30, 2024 and December 31, 2023, respectively. Our ratio of nonperforming loans to total assets was 0.16% and 0.08% at September 30, 2024 and December 31, 2023, respectively. We had no other real estate ownedand there were no loan modifications for borrowers who were experiencing financial difficulty during the quarter ended September 30, 2024.
Current wording
Nonperforming loans, defined as nonaccrual loans and loans contractually past due 90 days or more as to principal or interest and still accruing, were$10.7 million and $12.8 million at March 31, 2025 and December 31, 2024, respectively, a decrease of $2.1 million. The decrease in nonperforming loans at March 31, 2025 is primarily due to a decrease in loans past due over 90 days at March 31, 2025. Loans that we have classified as nonperforming are a result of customer specific deterioration, mostly financial in nature, that are not a result of economic, industry, or environmental causes that we might see as a pattern for possible future losses within our loan portfolio. For each of our criticized assets, we individually evaluate each loan, generally through the performance of a collateral analysis to determine the amount of allowance required. As a result of the analysis completed, we had a reserve for individually assessed loans totaling $462 thousand and $468 thousand at March 31, 2025 and December 31, 2024, respectively. Our ratio of nonperforming loans to total assets was 0.48% and 0.58% at March 31, 2025 and December 31, 2024, respectively. We had no other real estate owned and there were no loan modifications for borrowers who were experiencing financial difficulty during the quarters ended March 31, 2025 and December 31, 2024.
Previous wording
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At September 30, 2024, we had $15.4 million in loans identified as special mention, an increase of $9.2 million from December 31, 2023. Special mention rated loans have a potential weakness that deserves our close attention; however, the borrower continues to pay in accordance with their contractual terms, unless modified and disclosed. The increase from December 31, 2023 was driven by one loan that was downgraded to special mention during the second quarter of 2024. Loans rated as special mention are generally considered to be well-secured, and are not individually evaluated.
Current wording
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At March 31, 2025, we had $4.6 million in loans identified as special mention, an increase of $1.3 million from December 31, 2024. Special mention rated loans have a potential weakness that deserves our close attention; however, the borrower continues to pay in accordance with their contractual terms, unless modified and disclosed. The increase from December 31, 2024 was primarily a result of downgrading two loan relationships to special mention during the first quarter of 2025. Loans rated as special mention are generally considered to be well-secured, and are not individually evaluated.
Previous wording
At September 30, 2024 , we had $3.2 million in loans identified as substandard, a decrease of $19.4 million from December 31, 2023. Substandard rated loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. At September 30, 2024, specific reserves totaling $802 thousand were allocated within the allowance for credit losses to supplement any shortfall of collateral.
Current wording
At March 31, 2025, we had$10.7 million in loans identified as substandard, adecrease of $459 thousand from $11.2 million as of December 31, 2024, which was primarily a result of one loan being upgraded during the first quarter of 2025. Substandard rated loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. At March 31, 2025, reserves for individually assessed loans totaling $462 thousand were allocated within the allowance for credit losses to supplement any shortfall of collateral.
Previous wording
We recorded annualized net recoveries to average loans receivable of(0.01)% for the nine months ended September 30, 2024, compared to annualized net charge-offs of 0.02% for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, we have recorded net recoveries totaling$98 thousand, compared to net charge-offs of $326 thousand for the comparable nine month period of 2023. The following table provides additional information on our asset quality for the dates presented.
Current wording
We recorded annualized net recoveriesof (0.03)% and(0.01)% for the three months ended March 31, 2025 and 2024, respectively. The following table provides additional information on our asset quality for the dates presented.
Previous wording
We are closely and proactively monitoring the effects of recent market activity. As mentioned above, our commercial real estate loan portfolio totaled $1.06 billion, or 57% of total loans, at September 30, 2024 and $1.09 billion, or 60% of total loans, at December 31, 2023. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of the portfolio in a disciplined manner, and have comprehensive policies to monitor, measure and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Included in commercial real estate are loans secured by office buildings totaling $137.4 million, or 7% of total loans, and retail shopping centers totaling$260.7 million, or 14% of total loans, at September 30, 2024. Loans secured by multi-family commercial properties totaled $164.6 million, or 9% of total loans, at September 30, 2024.
Current wording
We closely and proactively monitor the effects of recent market activity. As mentioned above, our commercial real estate loan portfolio totaled $1.01 billion, or 54% of total loans, at March 31, 2025 and $1.04 billion, or 56% of total loans, at December 31, 2024. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portfolio in a disciplined manner, and have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring, and administrative practices. Included in commercial real estate are loans secured by office properties totaling $121.9 million, or 6% oftotal loans, which are primarily located in the Virginia and Maryland suburbs of our market area, with only $2.3 million, or 0.12% of total loans, located in Washington, D.C. Loans secured by retail properties total $244.9 million, or 13% of total loans, at March 31, 2025. Loans secured by multi-family commercial properties totaled $158.9 million, or 8%of total loans, at March 31, 2025.
Previous wording
(2). Minimum debt service coverage policy is 1.30x for owner occupied and 1.25x for non-owner occupied at origination.
Current wording
(3). Minimum debt service coverage policy is 1.30x for owner occupied and 1.25x for non-owner occupied at origination.
Previous wording
The loans shown in the above table exhibit strong credit quality, reflecting two classified loans at September 30, 2024 totaling $1.6 million. During our assessment of the allowance for credit losses on loans, we addressed the credit risks associated with these portfolio segments and believe that as a result of our conservative underwriting discipline at loan origination and our ongoing loan monitoring procedures, we have appropriately reserved for possible credit concerns in the event of a downturn in economic activity.
Current wording
The loans shown in the above table exhibit strong credit quality, with one classified delinquency at March 31, 2025 totaling $10.2 million, which has a specific reserve of $462 thousand. During our assessment of the allowance for credit losses on loans, we addressed the credit risks associated with these portfolio segments and believe that as a result of our conservative underwriting discipline at loan origination and our ongoing loan monitoring procedures, we have appropriately reserved for possible credit concerns in the event of a downturn in economic activity.
Previous wording
At September 30, 2024 and December 31, 2023, there were no performing loans considered potential problem loans. Potential problem loans are defined as loans that are not included in the 90 days or more past due, nonaccrual or restructured categories, but for which known information about possible credit problems causes us to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories. We take a conservative approach with respect to risk rating loans in our portfolio. Based upon the status as a potential problem loan, these loans receive heightened scrutiny and ongoing intensive risk management. Additionally, our allowance for credit losses on loans estimation methodology adjusts expected losses to calibrate the likelihood of a default event to occur through the use of risk ratings.
Current wording
At March 31, 2025 and 2024, there were no performing loans considered potential problem loans. Potential problem loans are defined as loans that are not included in the 90 days or more past due, nonaccrual, or rest ructured categories, but for which known information about possible credit problems causes us to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories. We take a conservative approach with respect to risk rating loans in our portfolio. Based upon the status as a potential problem loan, these loans receive heightened scrutiny and ongoing intensive risk management. Additionally, our allowance for credit losses on loans estimation methodology adjusts expected losses to calibrate the likelihood of a default event to occur through the use of risk ratings.
Previous wording
Our investment securities portfolio is used as a source of income and liquidity. The investment portfolio consists of investment securities available-for-sale and investment securities held-to-maturity. Investment securities available-for-sale are those securities that we intend to hold for an indefinite period of time, but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management or regulatory capital management. Investment securities held-to-maturity at September 30, 2024 and December 31, 2023 totaled$265 thousand and $264 thousand, respectively, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost. The fair value of our investment securities available-for-sale was $165.0 million at September 30, 2024, a decrease of $6.6 million, or 4%, from $171.6 million at December 31, 2023, primarily due to principal repayments and maturities of $11.2 million, offset by an increase in the market value of the investment securities portfolio totaling $4.6 million at September 30, 2024.
Current wording
Our investment securities portfolio is used as a source of income and liquidity. The investment portfolio consists of investment securities available-for-sale and investment securities held-to-maturity. Investment securities available-for-sale are those securities that we intend to hold for an indefinite period of time, but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management, or regulatory capital management. Investment securities held-to-maturity at each of March 31, 2025 and 2024 totaled $265 thousand, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost. The fair value of our investment securities available-for-sale was $158.7 million at March 31, 2025, anincrease of $2.2 million, or 1%, from $156.5 million at December 31, 2024, primarily due to an increase in the market value of the investment securities portfolio totaling $4.6 million offset by principal repayments and maturities of $3.3 million.
Previous wording
As of September 30, 2024 and December 31, 2023, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. All of our mortgage-backed securities are guaranteed by either the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. The effective duration of the investment securities portfolio continues to be slightly over five years, which is within the industry average. Investment securities that were pledged to secure public deposits totaled$45.2 million and $7.2 million at September 30, 2024 and December 31, 2023, respectively. Investment securities that were pledged to secure Federal Reserve Bank of Richmond ("FRB") borrowings totaled $6.3 million at September 30, 2024 and none at December 31, 2023.
Current wording
As of March 31, 2025 and December 31, 2024, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. All of our mortgage-backed securities are guaranteed by either the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. The effective duration of the investment securities portfolio continues to be slightly over five years, which is within the industry average. Investment securities that were pledged to secure public deposits totaled$20.2 million and $55.3 million at March 31, 2025 and December 31, 2024, respectively.
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Previous report — wording carried elsewhere
For the Three Months Ended September 30, 2024 and 2023
Previous report — wording carried elsewhere
Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities
Previous report — wording carried elsewhere
(1)Non-accrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the periods presented. Net loan fees and late charges included in interest income on loans totaled $1.2 million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively.
Previous report — wording carried elsewhere
(2)The average balances for investment securities includes restricted stock.
Previous report — wording carried elsewhere
The following table shows the effect of variations in the volume and mix of our assets and liabilities, as well as the changes in interest rates had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the nine months ended September 30, 2024.
Previous report — wording carried elsewhere
(1)Non-accrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the years presented.