MUNCY COLUMBIA FINANCIAL Corp

Previous wording

The Corporation’s financial statements have been prepared in accordance with U.S. GAAP and conform to general practices within the banking industry. In the preparation of its financial statements, the Corporation is required to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The Corporation’s critical accounting policies are fundamental to understanding this MD&A and are more fully described in Note 1 (“Summary of Significant Accounting Policies”) within the Corporation’s Notes to the Consolidated Financial Statements which are included in Part II of this Annual Report on Form 10-K.

Current wording

The Corporation’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and conform to general practices within the banking industry. In the preparation of its financial statements, the Corporation is required to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The Corporation’s critical accounting policies are fundamental to understanding this MD&A and are more fully described in Note 1 (“Summary of Significant Accounting Policies”) within the Corporation’s Notes to the Consolidated Financial Statements which are included in Part II of this Annual Report on Form 10-K.

Previous wording

The Corporation defines its critical accounting policies, in accordance with U.S. GAAP. U.S. GAAP requires the Corporation to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which those principles are applied. Application of assumptions different than those used by the Corporation could result in material changes in the Corporation’s financial position or results of operations. The Corporation believes its policies governing the determination of the allowance for credit/loan losses, the fair value of available-for-sale debt securities and the fair values of assets acquired and liabilities assumed in business combinations are critical accounting policies. The Corporation’s management has reviewed and approved these critical accounting policies and has discussed these policies with its Audit Committee. The Corporation believes the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments are as follows:

Current wording

The Corporation defines its critical accounting policies, in accordance with U.S. GAAP. U.S. GAAP requires the Corporation to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which those principles are applied. Application of assumptions different than those used by the Corporation could result in material changes in the Corporation’s financial position or results of operations. The Corporation believes its policies governing the determination of the allowance for credit losses, the fair value of available-for-sale debt securities and the fair values of assets acquired and liabilities assumed in business combinations are critical accounting policies. The Corporation’s management has reviewed and approved these critical accounting policies and has discussed these policies with its Audit Committee. The Corporation believes the critical accounting policies used in the preparation of its financial statements that require significant estimates and judgments are as follows:

Previous wording

As of January 1, 2023, the Corporation adopted Accounting Standards Update (“ASU”) 2016-13,Financial Instruments – Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” which replaced the current loss impairment methodology under U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13, commonly referred to as Current Expected Credit Losses (“CECL”), requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis and presented at the net amount expected to be collected. The amendments in this update affect financial assets and net investment in leases that are not accounted for at fair value through net income, including such financial assets as loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. Upon adoption of ASU 2016-13 on January 1, 2023, the Corporation recorded an incremental decrease in the ACL through a cumulative effect adjustment to equity, net of tax, with subsequent adjustments charged to earnings through a provision for credit losses.

Current wording

As of January 1, 2023, the Corporation adopted Accounting Standards Update (“ASU”) 2016-13,Financial Instruments – Credit Losses (Topic 326): “Measurement of Credit Losses on Financial Instruments,” which replaced the current loss impairment methodology under U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13, commonly referred to as Current Expected Credit Losses (“CECL”), requires a financial asset (or a group of financial assets) to be measured at an amortized cost basis and presented at the net amount expected to be collected. The amendments in this update affect financial assets and net investment in leases that are not accounted for at fair value through net income, including such financial

Previous wording

The ACL consists of two components, a specific component and a general component. The specific component relates to loans that are individually analyzed for impairment. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience adjusted. The general reserve component of the ACL is based on pools of performing loans segregated by loan segment. Historical loss factors are applied based on historical losses in each risk rating category to determine the appropriate reserve related to those loans.

Current wording

The ACL consists of two components, a specific component and a general component. The specific component relates to loans that are individually analyzed for impairment. For such loans, an allowance is established when the discounted cash flows, collateral value or observable market price of the loan is lower than the carrying value of that loan. The general component covers all other loans and is based on historical loss experience as adjusted for qualitative factors. The general reserve component of the ACL is based on pools of performing loans segregated by loan segment. Historical loss factors are applied based on historical losses in each risk rating category to determine the appropriate reserve related to those loans.

Previous wording

Although the Corporation’s management uses the best information available, the level of the ACL remains an estimate which is subject to significant judgment and short-term change which could have a significant impact on the Corporation’s financial condition or results of operations. From January 1, 2023 to December 31, 2023, the level of the ACL increased from $6.7 million to $9.3 million and the ACL to total loans decreased from 1.37% to 0.87%. The Corporation’s ACL is highly sensitive to the methods, assumptions and estimates underlying its calculation. See Note 1, “Summary of Significant Accounting Policies” and Note 5 “Loans and Allowance for Credit Losses” within the Corporation’s Notes to the Consolidated Financial Statements which are included in Part II of this Annual Report on Form 10-K for additional qualitative and quantitative information about the Corporation’s ACL.

Current wording

Although the Corporation’s management uses the best information available, the level of the ACL remains an estimate which is subject to significant judgment and short-term change which could have a significant impact on the Corporation’s financial condition or results of operations. From January 1, 2024 to December 31, 2024, the level of the ACL increased from $9.3 million to $9.9 million and the ACL to total loans increased from 0.87% to 0.88%. The Corporation’s ACL is highly sensitive to the methods, assumptions and estimates underlying its calculation. See Note 1, “Summary of Significant Accounting Policies” and Note 5 “Loans and Allowance for Credit Losses” within the Corporation’s Notes to the Consolidated Financial Statements which are included in Part II of this Annual Report on Form 10-K for additional qualitative and quantitative information about the Corporation’s ACL.

Previous wording

Business combinations are accounted for by applying the acquisition method. As of acquisition date, the identifiable assets acquired and liabilities assumed are measured at fair value and recognized separately from goodwill. Results of operations of the acquired entity are included in the consolidated statement of income from the date of acquisition. The calculation of intangible assets including core deposits and the fair value of loans are based on significant judgements. Core deposits intangibles are calculated using a discounted cash flow model based on various factors including discount rate, attrition rate, interest rate, cost of alternative funds and net maintenance costs. Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

Current wording

Business combinations are accounted for by applying the acquisition method. As of acquisition date, the identifiable assets acquired and liabilities assumed are measured at fair value and recognized separately from goodwill. Results of operations of the acquired entity are included in the consolidated statement of income from the date of acquisition. The calculation of intangible assets including core deposits and the fair value of loans are based on significant judgements. Core deposit intangibles are calculated using a discounted cash flow model based on various factors including discount rate, attrition rate, interest rate, cost of alternative funds and net maintenance costs. Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

Previous wording

In connection with the acquisition, effective November 11, 2023, the Corporation recorded goodwill of $17.7 million and a core deposit intangible asset of $12.1 million. Assets acquired totaled $671.4 million, including gross loans valued at $504.1 million, available-for-sale debt securities valued at $93.0 million, bank-owned life insurance valued at $17.8 million and premises and equipment, net, valued at $14.9 million. Liabilities assumed totaled $634.0 million, including deposits valued at $521.3 million and borrowings valued at $105.5 million. The fair value adjustments made to the acquired assets and liabilities of MFB are considered preliminary at this time and are subject to change as the Corporation finalizes its fair value determinations. The assets purchased and liabilities assumed in the acquisition were recorded at their preliminary estimated fair values at the time of closing and may be adjusted for up to one year subsequent to the acquisition.

Current wording

In connection with the acquisition, effective November 11, 2023, the Corporation recorded goodwill of $17.7 million and a core deposit intangible asset of $12.1 million. Assets acquired totaled $671.4 million, including gross loans valued at $504.1 million, available-for-sale debt securities valued at $93.0 million, bank-owned life insurance valued at $17.8 million and premises and equipment, net, valued at $14.9 million. Liabilities assumed totaled $634.0 million, including deposits valued at $521.3 million and borrowings valued at $105.5 million. The assets purchased and liabilities assumed in the acquisition were recorded at their preliminary estimated fair values at the time of closing and may be adjusted for up to one year subsequent to the acquisition.

Previous wording

For the year-ended December 31, 2023, the Corporation incurred pre-tax merger-related expenses related to the MBF transaction of $3.0 million. Merger-related expenses include voluntary severance and similar expenses as well as expenses related to conversion of MBF’s core banking system into the Corporation’s core system and legal and other professional expenses. Also during the fourth quarter 2023, the Corporation recorded a one-time provision for credit losses of $2.9 million for acquired non-Purchase Credit Deteriorated (“non-PCD”) loans (also known as the “CECL Credit Double Count”).

Current wording

For the year ended December 31, 2024, the Corporation incurred pre-tax merger-related expenses related to the MBF transaction of $241,000 compared to $3,028,000, for the year ended December 31, 2023. Merger-related expenses include voluntary severance and similar expenses as well as expenses related to conversion of MBF’s core banking system into the Corporation’s core system and legal and other professional expenses.

Previous wording

Total average assets increased 11.1% from $948.1 million for the year ended December 31, 2022 to $1.1 billion for the year ended December 31, 2023. Average earning assets were $1.0 billion in 2023 and $884.6 million in 2022. Average interest-bearing liabilities were $763.4 million in 2023 and $667.6 million in 2022.

Current wording

Total average assets increased 51.3% from $1.053 billion for the year ended December 31, 2023, to $1.593 billion for the year ended December 31, 2024, primarily related to the MBF merger. Average earning assets were $1.491 billion for the year ended December 31, 2024 and $1.009 billion for the year ended December 31, 2023. Average interest-bearing liabilities were $1.159 billion for the year ended December 31, 2024 and $763.4 million for the year ended December 31, 2023.

Previous wording

Gross loans not held for sale increased 102.5% to $1.1 billion at December 31, 2023 from $527.7 million at December 31, 2022. This increase is related to the MBF merger as well as strong new loan originations in 2023.

Current wording

Gross loans not held for sale increased 5.4% to $1.126 billion at December 31, 2024 from $1.068 billion at December 31, 2023. This increase is related to strong loan demand during the year ended December 31, 2024.

Previous wording

Total stockholder’s equity increased by $67.9 million, or 79.0%, from $85.9 million at December 31, 2022, to $153.8 million at December 31, 2023. The increase is primarily attributable to the MBF merger and the decrease in accumulated other comprehensive loss due to increased fair values in available-for-sale investment securities. Accumulated other comprehensive loss amounted to $15.0 million as of December 31, 2023 and $27.4 million as of December 31, 2022.

Current wording

Total stockholder’s equity increased by $12.6 million, or 8.2%, from $153.8 million at December 31, 2023, to $166.4 million at December 31, 2024. The increase is primarily attributable to earnings, net of cash dividends, along with a decrease in accumulated other comprehensive loss due to changes in the fair values of available-for-sale debt securities. Accumulated other comprehensive loss amounted to $13.9 million as of December 31, 2024 and $15.0 million as of December 31, 2023. These increases were partially offset by an increase in treasury stock of $1.5 million related to a repurchase during the year ended December 31, 2024.

Previous wording

The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio increased from 76.3% as of December 31, 2022 to 92.0% as of December 31, 2023, which remains within internal policy limits.

Current wording

The loan-to-deposit ratio is a key measurement of liquidity. Our loan-to-deposit ratio decreased from 92.0% as of December 31, 2023 to 86.4% as of December 31, 2024 due to the asset/liability mix changes noted above, and remains within internal policy limits.

Previous wording

At December 31, 2023, the investment portfolio was comprised principally of available-for-sale debt securities including, fixed-rate, taxable and tax-exempt obligations of state and political subdivisions and fixed-rate and floating-rate securities issued by U.S. government or U.S. government-sponsored agencies, which include agencies, mortgage-backed securities and collateralized mortgage obligations, or CMOs. Additionally, the Corporation holds equity investments in the stock of certain publicly traded bank holding companies. Except for U.S. government and government-sponsored agencies, there were no securities of any individual issuer that exceeded 10.0% of shareholders’ equity as of December 31, 2023.

Current wording

At December 31, 2024, the investment portfolio was comprised principally of available-for-sale debt securities including, fixed-rate, taxable and tax-exempt obligations of state and political subdivisions and fixed-rate and floating-rate securities issued by U.S. government or U.S. government-sponsored agencies, which include agencies, mortgage-backed securities and collateralized mortgage obligations, or CMOs. Additionally, the Corporation holds equity investments in the stock of certain publicly traded bank holding companies. Except for U.S. government and government-sponsored agencies, there were no securities of any individual issuer that exceeded 10.0% of stockholders’ equity as of December 31, 2024.

Previous wording

The majority of the Corporation’s debt securities are fixed-rate instruments and inherently subject to interest rate risk, as the value of fixed-rate securities fluctuate with changes in interest rates. Generally, a security’s value reacts inversely with changes in interest rates. Available-for-sale securities are carried at fair value, with unrealized gains or losses reported in the accumulated other comprehensive income or loss component of stockholder’s equity, net of deferred income taxes. At December 31, 2023, the Corporation reported a net unrealized loss, included in accumulated other comprehensive loss, of $15.0 million, net of deferred income taxes of $4.0 million, a decrease of $12.4 million compared to the net unrealized holding loss of $27.4 million, net of deferred income taxes of $7.3 million, at December 31, 2022. Any future changes in interest rates could result in changes in the fair value of the Corporation’s securities portfolio and capital position. However, accumulated other comprehensive income and loss related to available-for-sale debt securities is excluded from regulatory capital and does not have an impact on the Corporation’s regulatory capital ratios.

Current wording

The majority of the Corporation’s debt securities are fixed-rate instruments and inherently subject to interest rate risk, as the value of fixed-rate securities fluctuates with changes in interest rates. Generally, a security’s value reacts inversely with changes in interest rates. Available-for-sale securities are carried at fair value, with unrealized gains or losses reported in the accumulated other comprehensive income or loss component of stockholder’s equity, net of deferred income taxes. At December 31, 2024, the Corporation reported a net unrealized loss, included in accumulated other comprehensive loss, of $13.9 million, net of deferred income taxes of $3.7 million, a decrease of $1.1 million compared to the net unrealized holding loss of $15.0 million, net of deferred income taxes of $4.0 million, at December 31, 2023. Any future changes in interest rates could result in changes in the fair value of the Corporation’s securities portfolio and capital position. However, accumulated other comprehensive income and loss related to available-for-sale debt securities is excluded from regulatory capital and does not have an impact on the Corporation’s regulatory capital ratios.

Previous wording

At December 31, 2023 and December 31, 2022, the Corporation had $1.3 million and $1.1 million in equity securities recorded at fair value, respectively. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the years ended December 31, 2023 and 2022:

Current wording

At December 31, 2024 and December 31, 2023, the Corporation held $1.4 and $1.3 million, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the years ended December 31, 2024 and 2023:

Previous wording

Gross loans receivable increased 102.5% from $527.7 million at December 31, 2022 to $1.1 billion at December 31, 2023. The percentage distribution in the loan portfolio is shown in the tables below:

Current wording

Gross loans receivable increased 5.4% from $1.068 billion at December 31, 2023 to $1.126 billion at December 31, 2024. The percentage distribution in the loan portfolio is shown in the tables below:

Previous wording

As of December 31, 2023, commercial real estate loans totaled $359.8 million or $33.6% of total gross loans. Of this amount commercial mortgage loans represented $326.2 million or 30.5% of total gross loans and student housing loans represented $33.6 million or 3.1% of total gross loans. The following table presents the distribution of commercial mortgage loans and related percentage of the total loan portfolio as of December 31, 2023:

Current wording

As of December 31, 2024, commercial real estate loans totaled $371.7 million or 33.0% of total gross loans. Of this amount commercial mortgage loans represented $325.9 million or 28.9% of total gross loans and student housing loans represented $45.8 million or 4.1% of total gross loans. The following table presents the distribution of commercial mortgage loans and related percentage of the total loan portfolio as of December 31, 2024 and December 31, 2023:

Previous wording

The allowance for credit losses was $9.3 million at December 31, 2023, compared to $7.3 million at December 31, 2022. This allowance equaled 0.87% and 1.38% of total loans, net of unearned fees and costs and unamortized fair value adjustments, at December 31, 2023 and December 31, 2022, respectively. The allowance for credit losses was analyzed quarterly and reviewed by the Corporation’s Board of Directors. No concentration or apparent deterioration in classes of loans or pledged collateral was evident. Regular loan meetings with the Corporation’s Board of Directors reviewed new loans. Delinquent loans, loan exceptions and certain large loans are addressed by the full Board no less than monthly to determine compliance with policies.

Current wording

The allowance for credit losses was $9.9 million at December 31, 2024, compared to $9.3 million at December 31, 2023. The allowance equaled 0.88% of total loans, net of unearned fees and costs and unamortized fair value adjustments, at December 31, 2024 as compared to 0.87% of total loans at December 31, 2023. The allowance for credit losses is analyzed quarterly and reviewed by the Corporation’s Board of Directors. No concentration or apparent deterioration in classes of loans or pledged collateral was evident. Regular loan meetings with the Corporation’s Board of Directors reviewed new loans over specified thresholds. Delinquent loans, loan exceptions and certain large loans are addressed by the full Board no less than monthly to determine compliance with policies.

Previous wording

The following tables present the allocation of the allowance for credit losses as of December 31, 2023 and the allocation of the allowance for loan losses as of December 31, 2022:

Current wording

The following tables present the allocation of the allowance for credit losses as of December 31, 2024 and December 31, 2023:

Previous wording

At December 31, 2023, estimated uninsured deposits, or the portion of deposit accounts which exceeded the Federal Deposit Corporation insurance limit, totaled $248.4 million. Of this amount, $93.8 million was collateralized by securities pledged by the Corporation or letters of credit issued through the Federal Home Loan Bank of Pittsburgh. Time deposits of $250,000 or more totaled approximately $94.4 million at December 31, 2023.

Current wording

At December 31, 2024, estimated uninsured deposits, or the portion of deposit accounts which exceeded the Federal Deposit Corporation insurance limit, totaled $353.2 million. Of this amount, $202.0 million was collateralized by securities pledged by the Corporation or letters of credit issued through the Federal Home Loan Bank of Pittsburgh. Time deposits of $250,000 or more totaled approximately $100.3 million at December 31, 2024.

Previous wording

The average balance of short-term borrowings, including securities sold under agreements to repurchase and day-to-day FHLB - Pittsburgh borrowings increased $48.1 million or 32.1% from $149.7 million in 2022 to $197.8 million in 2023. Average short-term borrowings amounted to 25.9% of total interest-bearing liabilities as of December 31, 2023 as compared to 22.4% in 2022. Short-term borrowings consist primarily of securities sold under agreements to repurchase and periodic overnight or short-term Federal Home Loan Bank advances.

Current wording

Short-term borrowings consist primarily of securities sold under agreements to repurchase and periodic overnight or short-term Federal Home Loan Bank advances. Average short-term borrowings amounted to 10.3% and 25.9% of total interest-bearing liabilities for the years ended December 31, 2024 and 2023, respectively. This change was primarily related to the migration of customer repurchase agreements as well as a paydown in short-term FHLB borrowings during 2024 as discussed above.

Previous wording

Long-term borrowings consist of advances due to the FHLB - Pittsburgh. Under terms of a blanket agreement, the loans were secured by certain qualifying assets of the Bank which consisted principally of first mortgage loans. The carrying value of these collateralized items was $762.5 million at December 31, 2023. The Bank has lines of credit with the Federal Reserve Bank Discount Window, FHLB – Pittsburgh, and Atlantic Community Bankers Bank in the aggregate amount of $542.6 million at December 31, 2023. The unused portion of these lines of credit was $358.4 million at December 31, 2023.

Current wording

Long-term borrowings consist of advances due to the FHLB - Pittsburgh. Under terms of a blanket agreement, the loans are secured by certain qualifying assets of the Bank which consist principally of first mortgage loans. The carrying value of these collateralized items was $822.1 million at December 31, 2024. The Bank has lines of credit with the Federal Reserve Bank Discount Window, FHLB – Pittsburgh, and Atlantic Community Bankers Bank in the aggregate amount of $588.0 million at December 31, 2024. The unused portion of these lines of credit was $486.6 million at December 31, 2024.

Previous wording

Net income in 2023 amounted to $3.4 million, or $1.49 per share, a decrease of $6.1 million, or 64.4%, compared to $9.5 million, or $4.58 per share, in 2022. The decrease in 2023 net income compared to 2022 was primarily due to nonrecurring expenses associated with the MBF merger. Pretax merger-related expenses recorded in 2023 were $3.0 million. Also, during the fourth quarter 2023, the Corporation recorded a one-time pretax provision for credit losses of $2.9 million for acquired non-PCD loans.

Current wording

Net income in 2024 amounted to $19.0 million, or $5.33 per share, an increase of $15.6 million compared to $3.4 million, or $1.49 per share, in 2023. The increase in net income for 2024 compared to 2023 was primarily attributable to a significant increase in net interest income along with nonrecurring expenses associated with the MBF merger in 2023. Pretax merger-related expenses recorded in 2023 were $3.0 million, compared to $241,000 in 2024. Also, during the fourth quarter 2023, the Corporation recorded a one-time pretax provision for credit losses of $2.9 million for acquired non-PCD loans.

Previous wording

Tax-equivalent net interest income increased $1.0 million, or 4.5%, to $23.6 million in 2023 compared to $22.6 million in 2022. The increase in tax-equivalent net interest income was due to an increase in tax-equivalent interest income reflecting higher earning asset volumes and yields, partially offset by an increase in interest expense which resulted primarily from an increase in interest-bearing deposits and increased utilization of borrowed funds. Tax-equivalent net interest margin, a key measurement used in the banking industry to measure income from earning assets relative to the cost to fund those assets, is calculated by dividing tax-equivalent net interest income by average interest-earning assets. The Corporation’s tax-equivalent net interest margin declined 21 basis points to 2.34% in 2023 compared to 2.55% in 2022, which was largely caused by higher funding costs outpacing the increase in yield on earning assets. Additionally, significant rate increases in 2022 and 2023 have led to a decrease in the Corporation’s interest rate spread, the difference between the average yield on interest-earning assets, shown on a fully tax-equivalent basis, and the average cost of interest-bearing liabilities, as funding costs increased to a greater extent than asset yields. The Corporation’s rate spread was 1.85% in 2023, a decrease of 55 basis points as compared to 2.40% in 2022.

Current wording

Tax-equivalent net interest income** **increased $28.0 million, or 119.0%, to $51.6 million in 2024 compared to $23.6 million in 2023. The increase in tax-equivalent net interest income was due to an increase in tax-equivalent interest income reflecting higher earning asset volumes and yields, partially offset by an increase in interest expense which resulted primarily from an increase in interest-bearing deposits and increased cost of funds. Tax-equivalent net interest margin, a key measurement used in the banking industry to measure income from earning assets relative to the cost to fund those assets, is calculated by dividing tax-equivalent net interest income by average interest-earning assets. The Corporation’s tax-equivalent net interest margin increased 112 basis points to 3.46% in 2024 compared to 2.34% in 2023, which was largely caused by increases in yields on earning assets outpacing the increase in cost of funds. Additionally, interest rate spread, the difference between the average yield on interest-earning assets, shown on a fully tax-equivalent basis, and the average cost of interest-bearing liabilities, increased 101 basis points to 2.86% in 2024 compared to 1.85% in 2023.

Previous wording

Tax-equivalent interest income increased $12.0 million, or 45.2%, to $38.7 million in 2023 from $26.7 million in 2022, which was largely caused by significant growth in average earning assets, coupled with an increase in the tax-equivalent yield on average earning assets. Average earning assets increased $124.7 million, or 14.1%, to $1.0 billion in 2023 from $884.6 million in 2022, resulting in a corresponding increase to tax-equivalent interest income of $6.7 million. Specifically, average loans increased $129.5 million, or 26.3%, to $622.5 million in 2023 from $493.1 million in 2022, which reflected strong organic loan demand, as well as the MBF merger. Investment securities averaged $377.9 million in 2023, an increase of $26.5 million, or 7.5%, compared to $351.4 million in 2022, which contributed $903,000 to tax-equivalent interest income. The tax-equivalent yield on earning assets increased 82 basis points to 3.83% in 2023 from 3.01% in 2022, which resulted in a corresponding increase in tax-equivalent interest income of $5.3 million. The Corporation’s tax-equivalent yield on loans increased 79 basis points to 5.14% in 2023 compared to 4.35% in 2022, resulting in a corresponding increase in tax-equivalent interest income of $4.3 million, due primarily to the increasing interest rate environment. Meanwhile, the tax-equivalent yield on investment securities increased 35 basis points to 1.70% in 2023 from 1.35% in 2022 and caused a corresponding increase to tax-equivalent interest income of $750,000.

Current wording

Tax-equivalent interest income increased $44.2 million, or 114.4%, to $82.9 million in 2024 from $38.7 million in 2023, which was largely caused by significant growth in average earning assets, coupled with an increase in the tax-equivalent yield on average earning assets. Average earning assets increased $482.1 million, or 47.8%, to $1.5 billion in 2024 from $1.0 billion in 2023, resulting in a corresponding increase to tax-equivalent interest income of $27.1 million. Specifically, average loans increased $493.7 million, or 79.3%, to $1.1 billion in 2024 from $622.5 million in 2023, which reflected the MBF merger as well as strong organic loan growth. Taxable investment securities averaged $291.0 million in 2024, a decrease of $63.5 million, or 17.9%, compared to $354.4 million in 2023, and tax-exempt securities averaged $78.9 million in 2024, an increase of $55.4 million, or 235.9%, compared to $23.5 million in 2023, which contributed to an increase of $1.5 million in tax-equivalent interest income. The tax-equivalent yield on earning assets increased 173 basis points to 5.56% in 2024 from 3.83% in 2023, which resulted in a corresponding increase in tax-equivalent interest income of $17.1 million. The Corporation’s tax-equivalent yield on loans increased 144 basis points to 6.58% in 2024 compared to 5.14% in 2023, resulting in a corresponding increase in tax-equivalent interest income of $15.7 million, due primarily to net accretion of loan fair value adjustments recorded in conjunction with the MBF merger as well as the continued repricing of existing variable rate loans in the Corporation’s portfolio. Meanwhile, the tax-equivalent yield on investment securities increased 79 basis points to 2.49% in 2024 from 1.70% in 2023 and caused a corresponding increase to tax-equivalent interest income of $1.3 million.

Previous wording

Interest expense increased $11.0 million, or 271.5%, to $15.1 million in 2023 from $4.1 million in 2022, which was primarily from an increase in funding costs, coupled with an increase in average deposits. The Corporation was more reliant on wholesale funding in 2023. As a result, average borrowed funds, which is largely comprised of customer repurchase agreements and FHLB of Pittsburgh advances, averaged $220.4 million for 2023, an increase of $70.6 million from $149.8 million for 2022. Higher volumes of average borrowed funds resulted in a corresponding increase in interest expense of $1.5 million. Total average interest-bearing deposits increased $25.2 million, or 4.9%, to $543.0 million for 2023, compared to $517.8 million for 2022, which resulted in a corresponding increase in interest expense of $189,000. In the latter half of 2022 and into 2023, following the rapid rise in market interest rates, competition for deposits intensified and depositors became increasingly rate sensitive. The Corporation responded with increases in deposit rates in 2022 and 2023. As a result, the Corporation experienced an increase in interest expense due to an increase in funding costs. For the year-ended December 31, 2023, the Corporation’s cost of funds increased 137 basis points to 1.98% from 0.61% for the year ended December 31, 2022, which resulted in a corresponding increase in interest expense of $9.4 million.

Current wording

Interest expense increased $16.2 million, or 107.3%, to $31.3 million in 2024 from $15.1 million in 2023, which was primarily from an increase in funding costs, coupled with an increase in average deposits resulting from the MBF merger. Average borrowed funds, which is largely comprised of customer repurchase agreements and FHLB of Pittsburgh advances, averaged $184.5 million in 2024, a decrease of $35.9 million from $220.4 million in 2023. Lower volumes of average borrowed funds resulted in a corresponding decrease in interest expense of $1.7 million. Total average interest-bearing deposits increased $431.1 million, or 79.4%, to $974.1 million for 2024, compared to $543.0 million for 2023, which resulted in a corresponding increase in interest expense of $5.6 million. The Corporation experienced higher funding costs in 2023 and 2024 as a result of rising market rates and increased competition. For the year ended December 31, 2024, the Corporation’s cost of funds increased 72 basis points to 2.70% from 1.98% for the year ended December 31, 2023, which resulted in a corresponding increase in interest expense of $12.3 million.

Previous wording

To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the Consolidated Balance Sheets as it pertains to net interest income, the table below reflects these changes for 2023 versus 2022:

Current wording

To enhance the understanding of the effects of volumes (the average balance of earning assets and costing liabilities) and average interest rate fluctuations on the Consolidated Balance Sheets as it pertains to net interest income, the table below reflects these changes for the years ended December 31, 2024 versus December 31, 2023:

Previous wording

For the year ended December 31, 2023, the Corporation recorded a $2.6 million provision for credit losses. This was primarily as a result of the $2.9 million one-time provision related to purchased non-PCD loans acquired as part of the MBF merger, as well as a net credit due to other factors. The December 31, 2023 ACL, calculated under the new CECL methodology, reflected improvements in the projected economic forecasts and real estate valuations.

Current wording

For the year ended December 31, 2024, the Corporation recorded a $847,000 provision for credit losses on loans compared to $2.6 million for the year ended December 31, 2023. The provision for 2024 primarily reflects an increase in volume in the loan portfolio along with changes in qualitative factors related to the nature of the loan portfolio, volume and severity of past due loans, loan grade migration, changes in lending staff and changes in lending policies and procedures. The provision for 2023 was primarily as a result of a $2.9 million one-time provision related to purchased non-PCD loans acquired as part of the MBF merger, as well as a net credit due to other factors.

Previous wording

One standard to measure non-interest expense is to express annualized non-interest expense as a percentage of average total assets. As of December 31, 2023 this percentage was 2.29% compared to 2.01% in 2022.

Current wording

One standard to measure non-interest expense is to express annualized non-interest expense as a percentage of average total assets. For the year ended December 31, 2024 this percentage was 2.53% compared to 2.39% for the year ended December 31, 2023.

Previous wording

The Bank’s liquidity, represented by cash and due from banks, is a product of its operating, investing and financing activities. The Bank’s primary sources of funds are deposits, securities sold under agreements to repurchase, principal repayments of securities and outstanding loans, funds provided from operations, and day-to-day FHLB – Pittsburgh borrowings. In addition, the Corporation invests excess funds in short-term interest-earning assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities.

Current wording

The Bank’s liquidity, represented by cash and due from banks, is a product of its operating, investing and financing activities. The Bank’s primary sources of funds are deposits, securities sold under agreements to repurchase, principal repayments of securities and outstanding loans, funds provided from operations, and day-to-day FHLB – Pittsburgh borrowings. In addition, the Bank invests excess funds in short-term interest-earning assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and repayments on loans and mortgage-backed securities.

Previous wording

The Bank strives to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. The Bank is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. The Bank attempts to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of its business management. The Bank manages its liquidity in accordance with a board of directors-approved asset liability policy, which is administered by its asset-liability committee (“ALCO”). ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to the Corporation’s board of directors.

Current wording

The Bank strives to maintain sufficient liquidity to fund operations, loan demand and to satisfy fluctuations in deposit levels. The Bank is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound banking operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. The Bank attempts to maintain adequate but not excessive liquidity, and liquidity management is both a daily and long-term function of its business management. The Bank manages its liquidity in accordance with a board of directors-approved asset liability policy and liquidity contingency plan, which are administered by its asset-liability committee (“ALCO”). ALCO reports interest rate sensitivity, liquidity, capital and investment-related matters on a quarterly basis to the Bank’s board of directors.

Previous wording

The Bank reviews cash flow projections regularly and updates them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. While deposits and securities sold under agreements to repurchase are its primary source of funds, when needed it is also able to generate cash through borrowings from the FHLB. At December 31, 2023, the Bank had remaining available capacity with FHLB, subject to certain collateral restrictions, of $343.2 million.

Current wording

The Bank reviews cash flow projections regularly and updates them in order to maintain liquid assets at levels believed to meet the requirements of normal operations, including loan commitments and potential deposit outflows from maturing certificates of deposit and savings withdrawals. While deposits and securities sold under agreements to repurchase are its primary source of funds, when needed it is also able to generate cash through borrowings from the FHLB. At December 31, 2024, the Bank had remaining available capacity with FHLB, subject to certain collateral restrictions, of $468.0 million.

Previous wording

We manage liquidity on a daily basis. We believe that our liquidity is sufficient to meet present and future financial obligations and commitments on a timely basis. However, see potential liquidity risk factors at Item 1A – Risk Factors and refer to Consolidated Statements of Cash Flows in this Form 10-K.

Current wording

We manage liquidity on a daily basis. We believe that our liquidity is sufficient to meet present and future financial obligations and commitments on a timely basis. However, see potential liquidity risk factors at Item 1A – Risk Factors and refer to the Consolidated Statements of Cash Flows contained in this Annual Report on Form 10-K.

Previous wording

One major objective of the Bank when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Bank’s ALCO, which is comprised of senior management and Board members. ALCO meets quarterly to monitor the ratio of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk management is a regular part of management of the Bank. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of noncontractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the Board of Directors which includes limits on the impact to earnings from shifts in interest rates.

Current wording

One major objective of the Bank when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income. The management of and authority to assume interest rate risk is the responsibility of the Bank’s ALCO, which is comprised of senior management and Board members. ALCO meets quarterly to monitor the ratio of interest sensitive assets to interest sensitive liabilities. The process to review interest rate risk is a regular part of management of the Bank. Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of noncontractual assets and liabilities, are in effect. In addition, there is an annual process to review the interest rate risk policy with the Board of Directors which includes limits on the impact to earnings from shifts in interest rates.

Previous wording

To manage the interest sensitivity position, an asset/liability model called “gap analysis” is used to monitor the difference in the volume of the Bank’s interest sensitive assets and liabilities that mature or reprice within given periods. A positive gap (asset sensitive) indicates that more assets reprice during a given period compared to liabilities, while a negative gap (liability sensitive) has the opposite effect. The Bank employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest sensitive assets and liabilities in order to determine what impact these rate changes will have upon our net interest spread.

Current wording

To manage the interest sensitivity position, an asset/liability model called “gap analysis” is used to monitor the difference in the volume of the Bank’s interest sensitive assets and liabilities that mature or reprice within given periods. A positive gap (asset sensitive) indicates that more assets reprice during a given period compared to liabilities, while a negative gap (liability sensitive) has the opposite effect. The Bank employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure. This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions. The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest sensitive assets and liabilities in order to determine what impact these rate changes will have upon our net interest spread. At December 31, 2024, our cumulative gap positions were within the internal risk management guidelines.

Previous wording

It is our opinion that the asset/liability mix and the interest rate risk associated with the balance sheet is within manageable parameters. Additionally, the Bank’s Asset/Liability Committee meets quarterly with an investment consultant.

Current wording

It is our opinion that the asset/liability mix and the interest rate risk associated with the balance sheet is within manageable parameters. Additionally, the Bank’s ALCO meets quarterly with an asset liability management consultant.