Western New England Bancorp Inc
For the period ended Jun 30, 2024. Filed Aug 9, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 9, 2024
WNEB$13.69+0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-07.
0001999371-24-005722
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001999371-24-009828
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 74 previous paragraphs and 133 current paragraphs.
33 unchanged; 33 reworded; 60 added; 8 removed; 0 previous and 7 current paragraphs rearranged.
Tables are not compared: 26 previous and 62 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 (60)
Current report
Investment Securities
Current report
Total Loans
Current report
The Company’s commercial real estate loans are considered to be relatively diversified by borrower, industry and concentrated in the New England geographical area. A significant portion of the loan portfolio consists of commercial real estate loans, primarily made in Massachusetts, and to a lesser degree, Connecticut, and secured by real estate or other collateral in the market. Although these loans are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in the local real estate market could have an adverse impact on this portfolio of loans and the Company’s income and financial position. While our basic market area is in Massachusetts, the Company has made loans outside that market area where the applicant is an existing customer, and the nature and quality of such loans was consistent with the Company's lending policies.
Current report
We continuously monitor the asset quality of our loan portfolio. For the commercial portfolio, we monitor credit quality using a risk rating scale, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Management utilizes a loan risk rating methodology based on an 8-point scale. Pass grades are 0-4 and non-pass categories, which align with regulatory guidelines, include: special mention (5), substandard (6), doubtful (7) and loss (8). Risk rating assignment is determined by analyzing key factors, which may include: industry and market conditions, position within the industry, earnings trends, operating cash flow, debt capacity, guarantor strength, management, financial reporting, collateral and other considerations.
Current report
CRE Concentrations
Current report
The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (“Agencies”)issued guidance in 2006 which addresses institutions with increased concentrations of commercial real estate (“CRE”) loans. The guidance does not establish specific CRE lending limits; rather, it promotes sound risk management practices and appropriate levels of capital that will enable institutions to continue to pursue CRE lending in a safe and sound manner. In developing this guidance, the Agencies recognized that different types of CRE lending present different levels of risk, and that consideration should be given to the lower risk profiles and historically superior performance of certain types of CRE, such as well-structured multifamily housing finance, when compared to others, such as speculative office space construction.
Current report
Institutions are encouraged to segment their CRE portfolios to acknowledge these distinctions for risk management purposes. The guidance focuses on those CRE loans for which the cash flow from the real estate is the primary source of repayment rather than loans to a borrower for which real estate collateral is taken as a secondary source of repayment or through an abundance of caution. Thus, for the purposes of the guidance, CRE loans include those loans with risk profiles sensitive to the condition of the general CRE market (for example, market demand, changes in capitalization rates, vacancy rates, or rents). CRE loans are land development and construction loans (including 1- to 4-family residential and commercial construction loans) and other land loans. CRE loans also include loans secured by multifamily property, and nonfarm nonresidential property where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Excluded from the scope of this Guidance are loans secured by nonfarm nonresidential properties where the primary source of repayment is the cashflow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.
Current report
As part of their ongoing supervisory monitoring processes, the Agencies use certain criteria to identify institutions that are potentially exposed to significant CRE concentration risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its CRE concentration risk:
Current report
Total reported loans for construction, land development, and other land represent 100 percent or more of the institution’s total risk-based capital; or
Current report
Total commercial real estate loans as defined in this guidance represent 300 percent or more of the institution’s total risk-based capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50 percent or more during the prior 36 months.
Current report
The Agencies use the criteria as a preliminary step to identify institutions that may have CRE concentration risk. Because regulatory reports capture a broad range of CRE loans with varying risk characteristics, the supervisory monitoring criteria do not constitute limits on an institution’s lending activity but rather serve as high-level indicators to identify institutions potentially exposed to CRE concentration risk.
Current report
The Company holds a concentration in commercial real estate loans. As of June 30, 2024, construction, land development and other land loans represented 34.1% of consolidated bank risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio of 33.3%.
Current report
The management team has extensive experience in underwriting commercial real estate loans and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. The Board of Directors has established internal maximum limits on CRE as an asset class overall as well as sub limits within CRE by property class, to better manage and control the exposure to property classes during periods of changing economic conditions. The Board of Directors also has minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.
Current report
Our risk management process begins with a robust underwriting program. The underwriting and risk rating of all loans is completed by the Company’s Credit Department that is independent of the originating lender(s).
Current report
At June 30, 2024 and December 31, 2023, non-owner and owner occupied commercial real estate loans, totaled $1.1 billion, or 52.2%, of total gross loans, and $1.1 billion, or 53.3%, of total gross loans, respectively.
Current report
The table below breaks down the commercial real estate portfolio outstanding balance by non-owner and owner-occupied and by concentration as of June 30, 2024:
Current report
The table below breaks down the commercial real estate portfolio outstanding balance by non-owner and owner-occupied and by concentration as of December 31, 2023:
Current report
At June 30, 2024, of the $1.1 billion in commercial real estate loans, $864.6 million, or 42.7% of total gross loans, were categorized as non-owner occupied and represented 318.2% of total bank risk-based capital.
Current report
The following table further breaks down the non-owner occupied commercial real estate portfolio balances by concentration, collateral location and weighted average loan-to-value (“LTV”) as of June 30, 2024:
Current report
At December 31, 2023, of the $1.1 billion in commercial real estate loans, $881.7 million, or 43.5% of loans, was categorized as non-owner occupied and represented 324.8% of total risk-based capital.
Current report
The following table further breaks down the non-owner occupied commercial real estate portfolio balances by concentration, collateral location and weighted average LTV as of December 31, 2023.
Current report
The Company also underwrites and originates owner-occupied commercial real estate loans. These loans are typically term loans made to support properties that rely upon the operations of the business occupying the property for repayment. The Agencies specifically excluded owner-occupied commercial real estate from their concentration guidance, as the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.
Current report
The table below depicts a well-diversified portfolio of owner-occupied commercial real estate portfolio as of June 30, 2024:
Current report
The table below depicts a well-diversified portfolio of owner-occupied commercial real estate as of December 31, 2023:
Current report
Commercial Real Estate Office Exposure
Current report
Our total office-related commercial real estate loans (which is comprised of loans within our commercial real estate portfolio that are secured by office space, medical office space, and mixed-use where rental income is primarily from office space) totaled $233.3 million, or 85.9% of total bank risk-based capital and $236.1 million, or 87.0% of total bank risk-based capital, as of June 30, 2024 and December 31, 2023, respectively.
Current report
The table below breaks the office-related commercial real estate loans by collateral type for the periods noted:
Current report
Office-related CRE loans are primarily concentrated in Massachusetts, where approximately 47.3% at June 30, 2024 and 47.1%, at December 31, 2023, of the total balance of office-related CRE loans are located. The Company does not have office CRE loans secured by real estate in greater Boston or New York.
Current report
The following table sets forth the office-related CRE loans for non-owner occupied and owner-occupied CRE and their credit quality indicators as of the dates indicated:
Current report
Given prevailing market conditions such as rising interest rates, reduced occupancy as a result of the increase in hybrid work arrangements post-COVID, and lower commercial real estate valuations, we carefully monitor these loans for signs of deterioration in credit quality and other risks. Such heightened monitoring includes incremental risk management strategies undertaken by management, including more frequent portfolio reviews, ongoing monitoring of market conditions, and additional portfolio analysis, which may include monitoring concentration limitations, including concentrations by loan type, property type, geographic area and with participants, where applicable, and risk diversification, tracking aggregated policy and underwriting exceptions and stress testing the loan portfolios.
Current report
Deposits
Current report
Borrowings
Current report
At June 30, 2024, total borrowings decreased $1.9 million, or 1.2%, from $156.5 million at December 31, 2023 to $154.6 million. Short-term borrowings decreased $9.5 million, or 59.2%, to $6.6 million, compared to $16.1 million at December 31, 2023. Long-term borrowings increased $7.7 million, or 6.3%, from $120.6 million at December 31, 2023 to $128.3 million at June 30, 2024.
Current report
The Company utilized the Bank Term Funding Program (“BTFP”), which was created in March 2023 to enhance banking system liquidity by allowing institutions to pledge certain securities at par value and borrow at a rate of ten basis points over the one-year overnight index swap rate. The BTFP was available to federally insured depository institutions in the U.S., with advances having a term of up to one year with no prepayment penalties. The BTFP ceased extending new advances in March 2024. At December 31, 2023, the Company’s outstanding balance under the BTFP was $90.0 million. There were no outstanding balance under the BTFP at June 30, 2024.
Current report
At June 30, 2024 and December 31, 2023, borrowings also consisted of $19.7 million in fixed-to-floating rate subordinated notes. As of June 30, 2024, the Company had $437.4 million of additional borrowing capacity at the Federal Home Loan Bank, $403.8 million of additional borrowing capacity under the Federal Reserve Bank Discount Window and $25.0 million of other unsecured lines of credit with correspondent banks.
Current report
The Company’s liquidity position remains strong with solid core deposit relationships, cash, unencumbered securities, a diversified deposit base and access to diversified borrowing sources. At June 30, 2024, the Company had $1.1 billion in immediate available liquidity, compared to $574.4 million in uninsured deposits, or 26.4% of total deposits, representing a coverage ratio of 186%. Uninsured deposits are eligible for FDIC pass-through insurance if the customer opens an IntraFi Insured Cash Sweep (“ICS”) account or a reciprocal time deposit through the Certificate of Deposit Account Registry System (“CDARS”). IntraFi allows for up to $250.0 million per customer of pass-through FDIC insurance, which would more than cover each of the Bank’s deposit customers if such customer desired to have such pass-through insurance.
Current report
Capital
Current report
The Company reported net income of $3.5 million, or $0.17 per diluted share, for the three months ended June 30, 2024, compared to net income of $2.8 million, or $0.13 per diluted share, for the three months ended June 30, 2023. Net interest income decreased $2.4 million, or 14.1%, non-interest income increased $2.2 million, non-interest expense decreased $237,000, or 1.6%, and provision for credit losses decreased $714,000, during the same period. Return on average assets and return on average equity were 0.55% and 6.03%, respectively, for the three months ended June 30, 2024, compared to 0.43% and 4.72%, respectively, for the three months ended June 30, 2023.
Current report
Non-interest income increased $2.2 million, or 140.8%, to $3.8 million for the three months ended June 30, 2024, from $1.6 million for the three months ended June 30, 2023. During the three months ended June 30, 2024, service charges and fees on deposits increased $100,000, or 4.5%, income from bank-owned life insurance (“BOLI”) increased $8,000, or 1.6%, from $494,000 for the three months ended June 30, 2023 to $502,000 for the three months ended June 30, 2024. During the three months ended June 30, 2024, the Company reported an unrealized gain on marketable equity securities of $4,000. The Company did not have comparable gains or losses during the same period in 2023. During the three months ended June 30, 2024, the Company reported a gain of $987,000 on non-marketable equity investments and did not have comparable gains or losses during the same period in 2023. During the three months ended June 30, 2023, the Company recorded a non-recurring final termination expense of $1.1 million related to the defined benefit pension plan (the “DB Plan”) termination.
Current report
For the three months ended June 30, 2024, non-interest expense decreased $237,000, or 1.6%, to $14.3 million from $14.6 million, for the three months ended June 30, 2023. The decrease in non-interest expense was due to a decrease in professional fees of $222,000, or 27.6%, a decrease in salaries and benefits of $188,000, or 2.3%, a decrease in other non-interest expense of $75,000, or 5.1%, and a decrease in furniture and equipment expense of $9,000, or 1.8%. These decreases were partially offset by an increase in debit card and ATM processing fees of $115,000, or 21.8%, an increase in data processing expense of $54,000, or 6.8%, an increase in software expense of $40,000, or 7.6%, an increase in FDIC insurance expense of $33,000, or 11.4%, and an increase in occupancy expense of $15,000, or 1.2%.
Showing the first 40 of 60 passages. Open the source sections for the rest.
Removed paragraphs (8)
Previous report
At March 31, 2024, total borrowings decreased $4.7 million, or 3.0%, from $156.5 million at December 31, 2023 to $151.8 million. Short-term borrowings decreased $4.6 million, or 28.8%, to $11.5 million, compared to $16.1 million at December 31, 2023. Long-term borrowings were $120.6 million at March 31, 2024 and at December 31, 2023. Long-term borrowings consisted of $30.6 million outstanding with the FHLB and $90.0 million outstanding under the Federal Reserve BTFP at March 31, 2024 and at December 31, 2023. At March 31, 2024 and December 31, 2023, borrowings also consisted of $19.7 million in fixed-to-floating rate subordinated notes.
Previous report
Net income was $3.0 million, or $0.14 per diluted share, for the three months ended March 31, 2024, compared to net income of $5.3 million, or $0.24 per diluted share, for the three months ended March 31, 2023. Net interest income, our primary driver of revenues, decreased $3.2 million, or 17.1%, to $15.3 million for the three months ended March 31, 2024, from $18.5 million for the three months ended March 31, 2023.
Previous report
For the three months ended March 31, 2024, non-interest expense decreased $114,000, or 0.8%, to $14.8 million, from $14.9 million for the three months ended March 31, 2023. Salaries and employee benefits decreased $187,000, or 2.2%, professional fees decreased $188,000, or 24.8%, other non-interest expense decreased $98,000, or 7.3%, advertising expense decreased $68,000, or 16.3%, and furniture and equipment expense decreased $2,000, or 0.4%. Software expense increased $185,000, or 36.1%, data processing expense increased $109,000, or 14.5%, ATM network expense increased $62,000, or 12.6%, FDIC insurance expense increased $58,000, or 16.5%, and occupancy expense increased $15,000, or 1.1%.
Previous report
For the three months ended March 31, 2024, the efficiency ratio was 82.0%, compared to 69.3% for March 31, 2023. The increase in the efficiency ratio was primarily the result of a $3.5 million, or 16.1%, decrease in total revenues as a result of the interest paid on interest-bearing liabilities outpacing the increase in the yield on interest-earning assets. See “Explanation of Use of Non-GAAP Financial Measurements” for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.
Previous report
The term “liquidity” refers to our ability to generate adequate amounts of cash to fund loan originations, loan purchases, deposit withdrawals and operating expenses. Our primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities, maturities and calls of investment securities and funds provided by our operations. We also can borrow funds from the FHLB based on eligible collateral of loans and securities. Our material cash commitments include funding loan originations, fulfilling contractual obligations with third-party service providers, maintaining operating leases for certain of our Bank properties and satisfying repayment of our long-term debt obligations.
Previous report
Primary Sources of Liquidity
Previous report
On March 12, 2023, the FRB made available the BTFP, which enhances the ability of banks to borrow greater amounts against certain high-quality, unencumbered investments at par value. During the year ended December 31, 2023, the Company participated in the BTFP, which enabled the Company to pay off higher rate FHLB advances. With the BTFP, the Company has the ability to pay off the BTFP advance prior to maturity without incurring a penalty or termination fee.
Previous report
At March 31, 2024 and December 31, 2023, long-term debt included $90.0 million in outstanding advances under the BTFP with a weighted average fixed rate of 4.71%. At March 31, 2024, the Company had no remaining borrowing capacity under the BTFP.
Reworded paragraphs (33)
Previous wording
You should read the following financial results for the three months ended March 31, 2024 in the context of this strategy.
Current wording
You should read the following financial results for the three months and six months ended June 30, 2024 in the context of this strategy.
Previous wording
At March 31, 2024, total assets were $2.6 billion, a decrease of $7.3 million, or 0.3%, from December 31, 2023. The decrease in total assets was mainly related to a decrease in total loans of $1.8 million, or 0.1%, a decrease in investment securities of $855,000, or 0.2%, to $359.8 million, and a decrease in cash and cash equivalents of $6.2 million, or 21.6%, to $22.6 million.
Current wording
At June 30, 2024, total assets were $2.6 billion, an increase of $21.5 million, or 0.8%, from December 31, 2023. The increase in total assets was primarily due to an increase in cash and cash equivalents of $24.6 million, or 85.4%, partially offset by a decrease in investment securities of $7.7 million, or 2.1%, and a decrease in total loans of $1.1 million, or 0.1%.
Previous wording
At March 31, 2024 and December 31, 2023, the available-for-sale (“AFS”) and held-to-maturity (“HTM”) securities portfolio represented 14.1% of total assets. At March 31, 2024, the Company’s AFS securities portfolio, recorded at fair market value, increased $1.3 million, or 0.9%, from $137.1 million at December 31, 2023 to $138.4 million. The HTM securities portfolio, recorded at amortized cost, decreased $2.2 million, or 1.0%, from $223.4 million at December 31, 2023 to $221.2 million at March 31, 2024.
Current wording
At June 30, 2024, the investment securities portfolio totaled $353.0 million, or 13.6% of total assets, compared to $360.7 million, or 14.1%, of total assets, at December 31, 2023. At June 30, 2024, the Company’s available-for-sale (“AFS”) securities portfolio, recorded at fair market value, decreased $2.0 million, or 1.5%, from $137.1 million at December 31, 2023 to $135.1 million. The held-to-maturity (“HTM”) securities portfolio, recorded at amortized cost, decreased $5.8 million, or 2.6%, from $223.4 million at December 31, 2023 to $217.6 million at June 30, 2024.
Previous wording
At March 31, 2024, the Company reported unrealized losses on the AFS securities portfolio of $31.7 million, or 18.6% of the amortized cost basis of the AFS securities portfolio, compared to unrealized losses of $29.2 million, or 17.5% of the amortized cost basis of the AFS securities at December 31, 2023. At March 31, 2024, the Company reported unrealized losses on the HTM securities portfolio of $39.6 million, or 17.9%, of the amortized cost basis of the HTM securities portfolio, compared to $35.7 million, or 16.0% of the amortized cost basis of the HTM securities portfolio at December 31, 2023.
Current wording
At June 30, 2024, the Company reported unrealized losses on the AFS securities portfolio of $31.7 million, or 19.0% of the amortized cost basis of the AFS securities portfolio, compared to unrealized losses of $29.2 million, or 17.5% of the amortized cost basis of the AFS securities at December 31, 2023. At June 30, 2024, the Company reported unrealized losses on the HTM securities portfolio of $40.2 million, or 18.5%, of the amortized cost basis of the HTM securities portfolio, compared to $35.7 million, or 16.0% of the amortized cost basis of the HTM securities portfolio at December 31, 2023.
Previous wording
The securities in which the Company may invest are limited by regulation. Federally chartered savings banks have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises, mortgage-backed securities, certain certificates of deposit of insured financial institutions, repurchase agreements, overnight and short-term loans to other banks, corporate debt instruments and marketable equity securities. The securities, with the exception of $4.1 million in corporate bonds, are issued by the United States government or government-sponsored enterprises and are therefore either explicitly or implicitly guaranteed as to the timely payment of contractual principal and interest. These positions are deemed to have no credit impairment, therefore, the disclosed unrealized losses with the securities portfolio relate primarily to changes in prevailing interest rates. In all cases, price improvement in future periods will be realized as the issuances approach maturity.
Current wording
The securities in which the Company may invest are limited by regulation. Federally chartered savings banks have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises, mortgage-backed securities, certain certificates of deposit of insured financial institutions, repurchase agreements, overnight and short-term loans to other banks, corporate debt instruments and marketable equity securities. The securities, with the exception of $4.3 million in corporate bonds, are issued by the United States government or government-sponsored enterprises and are therefore either explicitly or implicitly guaranteed as to the timely payment of contractual principal and interest. These positions are deemed to have no credit impairment, therefore, the disclosed unrealized losses with the securities portfolio relate primarily to changes in prevailing interest rates. In all cases, price improvement in future periods will be realized as the issuances approach maturity.
Previous wording
At March 31, 2024, total loans decreased $1.8 million, or 0.1%, to $2.0 billion from December 31, 2023. Commercial and industrial loans decreased $10.1 million, or 4.7%. The decrease in commercial and industrial loans was partially offset by an increase in residential real estate loans, including home equity loans, of $4.6 million, or 0.6%, and an increase in commercial real estate loans of $4.2 million, or 0.4%. The decrease in commercial and industrial loans at March 31, 2024 was due to the payoff of one Substandard commercial loan relationship totaling $13.0 million during the three months ended March 31, 2024. All loans where the payments are 90 days or more in arrears as of the closing date of each month are placed on nonaccrual status. If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional interest income of $121,000 and $129,000 for the three months ended March 31, 2024 and 2023, respectively.
Current wording
At June 30, 2024, total loans decreased $1.1 million, or 0.1%, from December 31, 2023, to $2.0 billion. Commercial real estate loans decreased $23.2 million, or 2.1%, commercial and industrial loans decreased $1.1 million, or 0.5%, while residential real estate loans, including home equity loans, increased $23.8 million, or 3.3%. All loans where the payments are 90 days or more in arrears as of the closing date of each month are placed on nonaccrual status. If all nonaccrual loans had been performing in accordance with their terms, we would have earned additional interest income of $245,000 and $222,000 for the six months ended June 30, 2024 and 2023, respectively.
Previous wording
Total delinquency was 0.23% of total loans at March 31, 2024, compared to 0.30% of total loans at December 31, 2023. At March 31, 2024, nonperforming loans totaled $5.8 million, or 0.29% of total loans, compared to $6.4 million, or 0.32% of total loans, at December 31, 2023. At March 31, 2024 and December 31, 2023, there were no loans 90 or more days past due and still accruing interest. At March 31, 2024 and December 31, 2023, nonperforming assets to total assets was 0.23% and 0.25%, respectively. At March 31, 2024 and December 31, 2023, the Company did not have any other real estate owned.
Current wording
Total delinquency was $5.6 million, or 0.27% of total loans, at June 30, 2024, compared to $6.0 million, or 0.30% of total loans at December 31, 2023. At June 30, 2024, nonperforming loans totaled $5.8 million, or 0.29% of total loans, compared to $6.4 million, or 0.32% of total loans, at December 31, 2023. Total nonperforming assets totaled $5.8 million, or 0.23% of total assets, at June 30, 2024, compared to $6.4 million, or 0.25% of total assets, at December 31, 2023. At June 30, 2024 and December 31, 2023, there were no loans 90 or more days past due and still accruing interest. At June 30, 2024 and December 31, 2023, the Company did not have any OREO.
Previous wording
At March 31, 2024, the allowance for credit losses as a percentage of total loans was 0.98%, compared to 1.00% at December 31, 2023. At March 31, 2024, the allowance for credit losses as a percentage of nonperforming loans was 340.7%, compared to 315.6% at December 31, 2023.
Current wording
At June 30, 2024, the allowance for credit losses as a percentage of total loans was 0.96%, compared to 1.00% at December 31, 2023. At June 30, 2024, the allowance for credit losses as a percentage of nonperforming loans was 332.7%, compared to 315.6% at December 31, 2023.
Previous wording
Total criticized loans, defined as Special Mention and Substandard loans, decreased $2.7 million, or 6.9%, from $39.5 million, or 1.9% of total loans, at December 31, 2023 to $36.8 million, or 1.8%, of total loans at March 31, 2024. We continue to maintain diversity among property types and within our geographic footprint. A summary of our past due and nonaccrual loans by class is listed in Note 5 of the accompanying unaudited consolidated financial statements.
Current wording
Total classified loans, defined as special mention and substandard loans, decreased $2.8 million, or 7.1%, from $39.5 million, or 1.9% of total loans, at December 31, 2023 to $36.7 million, or 1.8%, of total loans at June 30, 2024. Our philosophy toward managing our loan portfolios is predicated upon careful monitoring, which stresses early detection in problem loans and an immediate response to delinquent and default situations. We seek to make arrangements to resolve any delinquent or default situation over the shortest possible time frame to minimize loss to the Company. We continue to maintain diversity among property types and within our geographic footprint. Management continues to remain attentive to any signs of deterioration in borrowers’ financial conditions and is proactive in taking the appropriate steps to mitigate risk. A summary of our past due and nonaccrual loans by class is listed in Note 5 of the accompanying unaudited consolidated financial statements.
Previous wording
Total deposits were $2.1 billion at March 31, 2024 and December 31, 2023. Core deposits, which the Company defines as all deposits except time deposits, decreased $31.9 million, or 2.1%, from $1.5 billion, or 71.5% of total deposits, at December 31, 2023, to $1.5 billion, or 70.0% of total deposits, at March 31, 2024. Money market accounts decreased $9.9 million, or 1.6%, to $624.5 million, non-interest-bearing deposits decreased $19.7 million, or 3.4%, to $559.9 million, interest-bearing checking accounts decreased $5.6 million, or 4.3%, to $125.4 million and savings accounts increased $3.3 million, or 1.8%, to $190.7 million. Time deposits increased $31.8 million, or 5.2%, from $611.4 million at December 31, 2023 to $643.2 million at March 31, 2024. Brokered time deposits, which are included in time deposits, totaled $1.7 million at March 31, 2024 and December 31, 2023.
Current wording
Total deposits increased $28.1 million, or 1.3%, from $2.1 billion at December 31, 2023 to $2.2 billion at June 30, 2024. Core deposits, which the Company defines as all deposits except time deposits, decreased $32.3 million, or 2.1%, from $1.5 billion, or 71.5% of total deposits, at December 31, 2023, to $1.5 billion, or 69.1% of total deposits, at June 30, 2024. Non-interest-bearing deposits decreased $26.3 million, or 4.5%, to $553.3 million, money market accounts decreased $22.9 million, or 3.6%, to $611.5 million, savings accounts decreased $1.2 million, or 0.7%, to $186.2 million and interest-bearing checking accounts increased $18.1 million, or 13.8%, to $149.1 million. Time deposits increased $60.3 million, or 9.9%, from $611.4 million at December 31, 2023 to $671.7 million at June 30, 2024. Brokered time deposits, which are included in time deposits, totaled $1.7 million at June 30, 2024 and December 31, 2023.
Previous wording
During the three months ended March 31, 2024, the Company continued to experience an unfavorable shift in deposit mix from low cost core deposits to high cost time deposits as customers continue to migrate to higher deposit rates. The Company continues to focus on the maintenance, development, and expansion of its core deposit base to meet funding requirements and liquidity needs, with an emphasis on retaining a long-term customer relationship base by competing for and retaining deposits in our local market. At March 31, 2024, the Bank’s uninsured deposits represented 26.0% of total deposits, compared to 26.8% at December 31, 2023.
Current wording
During the six months ended June 30, 2024, the Company continued to experience an unfavorable shift in deposit mix from low cost core deposits to high cost time deposits as customers continue to migrate to higher deposit rates. The Company continues to focus on the maintenance, development, and expansion of its core deposit base to meet funding requirements and liquidity needs, with an emphasis on retaining a long-term customer relationship base by competing for and retaining deposits in our local market. At June 30, 2024, the Bank’s uninsured deposits represented 26.4% of total deposits, compared to 26.8% at December 31, 2023.
Previous wording
At March 31, 2024, shareholders’ equity was $235.8 million, or 9.2% of total assets, compared to $237.4 million, or 9.3% of total assets, at December 31, 2023. The decrease was primarily attributable to an increase in accumulated other comprehensive loss of $1.9 million, $1.8 million for the repurchase of common stock and cash dividends paid of $1.5 million, partially offset by net income of $3.0 million. At March 31, 2024, total shares outstanding were 21,627,690.
Current wording
At June 30, 2024, shareholders’ equity was $236.5 million, or 9.1% of total assets, compared to $237.4 million, or 9.3% of total assets, at December 31, 2023. The decrease was primarily attributable to an increase in accumulated other comprehensive loss of $1.9 million, cash dividends paid of $3.0 million, repurchase of shares at a cost of $3.6 million, partially offset by net income of $6.5 million. At June 30, 2024, total shares outstanding were 21,357,849.
Previous wording
The Company’s regulatory capital ratios continue to be strong and in excess of regulatory minimum requirements to be considered well-capitalized as defined by regulators and internal Company targets. The Company’s Total Risk-Based Capital Ratio was 14.7% at March 31, 2024 and December 31, 2023. The Bank’s Tier 1 Leverage Ratio to adjusted average assets was 9.77% at March 31, 2024 and 9.62% at December 31, 2023. The Bank’s tangible common equity (“TCE”) to tangible assets ratio, a non-GAAP financial measure, was 8.85% at March 31, 2024, compared to 8.78% at December 31, 2023. Fluctuations in the TCE ratio were driven by the changes in the unrealized loss on available-for-sale securities. TCE is a non-GAAP measure. See “Explanation of Use of Non-GAAP Financial Measurements” for more information regarding our uses of non-GAAP financial measurements.
Current wording
The Company’s regulatory capital ratios continue to be strong and in excess of regulatory minimum requirements to be considered well-capitalized as defined by regulators and internal Company targets. Total Risk-Based Capital Ratio was 14.7% at June 30, 2024 and December 31, 2023. The Bank’s Tier 1 Leverage Ratio to adjusted average assets was 9.78% at June 30, 2024 and 9.62% at December 31, 2023.
Previous wording
The following tables set forth the information relating to our average balance and net interest income for the three months ended March 31, 2024 and 2023, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing annualized interest income by the average balance of interest-earning assets and annualized interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets.
Current wording
The following tables set forth the information relating to our average balance and net interest income for the three months ended June 30, 2024 and 2023, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing interest income by the average balance of interest-earning assets and interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets.
Previous wording
Net interest income, our primary driver of revenues, decreased $3.2 million, or 17.1%, to $15.3 million for the three months ended March 31, 2024, from $18.5 million for the three months ended March 31, 2023. The decrease in net interest income was the result of the interest rate paid on interest-bearing liabilities outpacing the increase in the yield on interest-earning assets. Interest expense increased $6.1 million, or 119.3%, while interest and dividend income increased $3.0 million, or 12.5%. The increase in interest expense was a result of the higher cost of interest-bearing liabilities as well as the unfavorable shift in the deposit mix from low cost core deposits to high cost time deposits.
Current wording
Net interest income, our primary driver of revenues, decreased $2.4 million, or 14.1%, to $14.5 million, for the three months ended June 30, 2024, from $16.8 million for the three months ended June 30, 2023. The decrease in net interest income was due to an increase in interest expense of $4.4 million, or 54.9%, partially offset by an increase in interest and dividend income of $2.0 million, or 8.0%. Interest expense on deposits increased $4.3 million, or 70.3%, and interest expense on borrowings increased $103,000, or 5.4%. The increase in interest expense was a result of competitive pricing on deposits due to the continued higher interest rate environment and the unfavorable shift in the deposit mix from low cost core deposits to high cost time deposits.
Previous wording
The net interest margin was 2.57% for the three months ended March 31, 2024, compared to 3.14%, for the three months ended March 31, 2023. The net interest margin, on a tax-equivalent basis, was 2.59% for the three months ended March 31, 2024, compared to 3.16% for the three months ended March 31, 2023. The Company’s net interest margin, during the three months ended March 31, 2024, continued to be negatively impacted by higher deposit costs as well as a shift in the deposit mix from low-cost core deposits to high-cost deposits.
Current wording
The net interest margin was 2.42% for the three months ended June 30, 2024, compared to 2.81% for the three months ended June 30, 2023. The net interest margin, on a tax-equivalent basis, was 2.44% for the three months ended June 30, 2024, compared to 2.83% for the three months ended June 30, 2023. The decrease in the net interest margin was primarily due to an increase in the average cost of interest-bearing liabilities and the unfavorable shift in the deposit mix from low cost core deposits to high cost time deposits, which was partially offset by an increase in the average yield on interest-earning assets.
Previous wording
The average yield on interest-earning assets increased 44 basis points from 4.01% for the three months ended March 31, 2023 to 4.45% for the three months ended March 31, 2024. The average loan yield, without the impact of tax-equivalent adjustments, was 4.82% for the three months ended March 31, 2024, compared to 4.34% for the three months ended March 31, 2023. During the three months ended March 31, 2024, average interest-earning assets increased $9.6 million, or 0.4% to $2.4 billion, primarily due to an increase in average loans of $28.6 million, or 1.4%, an increase in average short-term investments, consisting of cash and cash equivalents, of $3.5 million, or 58.8%, partially offset by a decrease in average securities of $22.9 million, or 6.0%.
Current wording
The average yield on interest-earning assets, without the impact of tax-equivalent adjustments, was 4.49% for the three months ended June 30, 2024, compared to 4.14% for the three months ended June 30, 2023. The average loan yield, without the impact of tax-equivalent adjustments, was 4.85% for the three months ended June 30, 2024, compared to 4.49% for the three months ended June 30, 2023. During the three months ended June 30, 2024, average interest-earning assets decreased $4.4 million, or 0.2% to $2.4 billion, primarily due to a decrease in average securities of $19.7 million, or 5.3%, partially offset by an increase in average loans of $10.2 million, or 0.5%, an increase in short-term investments, consisting of cash and cash equivalents, of $4.0 million, or 38.8%, and an increase in average other investments of $1.0 million, or 7.5%.
Previous wording
During the three months ended March 31, 2024, the average cost of funds, including non-interest-bearing demand accounts and borrowings, increased 106 basis points, from 0.91% for the three months ended March 31, 2023 to 1.97% for the three months ended March 31, 2024. The average cost of core deposits, which include non-interest-bearing demand accounts, increased 23 basis points, from 0.53% for the three months ended March 31, 2023 to 0.76% for the three months ended March 31, 2024. The average cost of time deposits increased 241 basis points from 1.71% for the three months ended March 31, 2023 to 4.12% for the three months ended March 31, 2024. The average cost of borrowings, including subordinated debt, increased 7 basis points from 4.84% for the three months ended March 31, 2023 to 4.91% for the three months ended March 31, 2024. For the three months ended March 31, 2024, average demand deposits, an interest-free source of funds, decreased $81.5 million, or 12.7%, to $557.7 million, or 26.1% of total average deposits, from $639.2 million, or 29.0% of total average deposits for the three months ended March 31, 2023.
Current wording
The average cost of total funds, including non-interest bearing accounts and borrowings, increased 77 basis points from 1.39% for the three months ended June 30, 2023 to 2.16% for the three months ended June 30, 2024. The average cost of core deposits, which the Company defines as all deposits except time deposits, increased 23 basis points to 0.87% for the three months ended June 30, 2024, from 0.64% for the three months ended June 30, 2023. The average cost of time deposits increased 165 basis points from 2.74% for the three months ended June 30, 2023 to 4.39% for the three months ended June 30, 2024. The average cost of borrowings, including subordinated debt, increased 12 basis points from 4.88% for the three months ended June 30, 2023 to 5.00% for the three months ended June 30, 2024. Average demand deposits, an interest-free source of funds, decreased $42.7 million, or 7.2%, from $591.4 million, or 27.6% of total average deposits, for the three months ended June 30, 2023, to $548.8 million, or 25.7% of total average deposits, for the three months ended June 30, 2024.
Previous wording
During the three months ended March 31, 2024, the Company recorded a reversal of credit losses of $550,000, compared to a reversal of credit losses of $388,000 during the three months ended March 31, 2023. The provision for credit losses was determined by a number of factors: the continued strong credit performance of the Company’s loan portfolio, changes in the loan portfolio mix and Management’s consideration of existing economic conditions and the economic outlook from the Federal Reserve’s actions to control inflation. Management continues to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately reserved for the current economic environment and supportable forecast period.
Current wording
During the three months ended June, 30, 2024, the Company recorded a reversal of credit losses of $294,000, compared to a provision for credit losses of $420,000, during the three months ended June 30, 2023. The decrease was primarily due to changes in the economic environment and related adjustments to the quantitative components of the CECL methodology. The provision for credit losses was determined by a number of factors: the continued strong credit performance of the Company’s loan portfolio, changes in the loan portfolio mix and Management’s consideration of existing economic conditions and the economic outlook from the Federal Reserve’s actions to control inflation. Management continues to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately reserved for the current economic environment.
Previous wording
The Company recorded net recoveries of $67,000 for the three months ended March 31, 2024, compared to net charge-offs of $1.9 million for the three months ended March 31, 2023. The charge-offs during the three months ended March 31, 2023 were related to one commercial relationship.
Current wording
The Company recorded net charge-offs of $10,000 for the three months ended June 30, 2024, as compared to net recoveries of $25,000 for the three months ended June 30, 2023.
Previous wording
Income tax expense for the three months ended March 31, 2024 was $827,000, or an effective tax rate of 21.8%, compared to $1.7 million, or an effective tax rate of 24.0%, for three months ended March 31, 2023.
Current wording
Income tax expense for the three months ended June 30, 2024 was $771,000, or an effective tax rate of 18.0%, compared to $704,000, or an effective tax rate of 20.3%, for the three months ended June 30, 2023.
Previous wording
Non-interest income decreased $305,000, or 10.2%, to $2.7 million for the three months ended March 31, 2024, from $3.0 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, service charges and fees on deposits increased $32,000, or 1.5%, income from BOLI increased $13,000, or 3.0%, from $440,000 for the three months ended March 31, 2023 to $453,000 for the three months ended March 31, 2024. During the three months ended March 31, 2024, the Company reported a loss on the disposal of premises and equipment of $6,000. The Company did not have a comparable loss during the three months ended March 31, 2023. During the three months ended March 31, 2024, the Company reported unrealized gains on marketable equity securities of $8,000. The Company did not have comparable unrealized gains or losses during the three months ended March 31, 2023. During the three months ended March 31, 2023, the Company reported a gain on non-marketable equity investments of $352,000. The Company did not have comparable unrealized gains or losses during the three months ended March 31, 2024. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the related yield curve and valuation changes.
Current wording
For the six months ended June 30, 2024, non-interest income increased $1.9 million, or 42.4%, from $4.6 million during the six months ended June 30, 2023 to $6.5 million. During the same period, service charges and fees on deposits increased $132,000, or 3.0%, and income from BOLI increased $21,000, or 2.2%. During the six months ended June 30, 2024, the Company reported a gain of $987,000 on non-marketable equity investments, compared to a gain of $352,000, during the six months ended June 30, 2023. During the six months ended June 30, 2024, the Company reported a loss on the disposal of premises and equipment of $6,000 and did not have a comparable gain or loss during the six months ended June 30, 2023. In addition, during the six months ended June 30, 2024, the Company reported unrealized gains on marketable equity securities of $12,000, and did not have comparable gains or losses during the six months ended June 30, 2023. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the related yield curve and valuation changes. During the six months ended June 30, 2023, the Company recorded a $1.1 million final termination expense related to the DB Plan termination. The Company did not have comparable income or expense during the six months ended June 30, 2024.
Previous wording
The Company, on an ongoing basis, closely monitors the Company’s liquidity position for compliance with internal policies, and believes that available sources of liquidity are adequate to meet funding needs in the normal course of business. As part of that monitoring process, the Company stresses the potential liabilities calculation to ensure a strong liquidity position. Included in the calculation are assumptions of some significant deposit run-off as well as funds needed for loan closing and investment purchases. The Company does not anticipate engaging in any activities, either currently or over the long-term, for which adequate funding would not be available and which would therefore result in significant pressure on liquidity. However, an economic recession could negatively impact the Company’s liquidity. The Bank relies heavily on FHLB as a source of funds, particularly with its overnight line of credit. In past economic recessions, some FHLB branches have suspended dividends, cut dividend payments, and not bought back excess FHLB stock that members hold in an effort to conserve capital. FHLB has stated that it expects to be able to continue to pay dividends, redeem excess capital stock, and provide competitively priced advances in the future.
Current wording
The Company’s liquidity positions are monitored daily by management. The Asset Liability Committee (“ALCO”) establishes guidelines to ensure maintenance of prudent levels of liquidity. The Company has a detailed liquidity funding policy and a contingency funding plan that provide for the prompt and comprehensive response to unexpected demands for liquidity. Management employs a stress testing methodology to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of “business as usual” cash flows to ensure a strong liquidity position. Included in the calculation are assumptions of some significant deposit run-off as well as funds needed for loan funding and investment purchases. The Company does not anticipate engaging in any activities, either currently or over the long-term, for which adequate funding would not be available and which would therefore result in significant pressure on liquidity. However, an economic recession could negatively impact the Company’s liquidity. The Company relies heavily on the FHLB as a source of funds, particularly with its overnight line of credit. In past economic recessions, some FHLB branches have suspended dividends, cut dividend payments, and suspended the purchase of excess FHLB stock that members hold in an effort to conserve capital. FHLB has stated that it expects to be able to continue to pay dividends, redeem excess capital stock, and provide competitively priced advances in the future.
Previous wording
At March 31, 2024 and December 31, 2023, outstanding borrowings from the FHLB were $35.4 million and $40.6 million, respectively. At March 31, 2024, we had $517.7 million in available borrowing capacity with the FHLB, which includes our Ideal Way Line of Credit. We have the ability to increase our borrowing capacity with the FHLB by pledging investment securities or additional loans.
Current wording
At June 30, 2024 and December 31, 2023, outstanding borrowings from the FHLB were $128.3 million and $40.6 million, respectively. At June 30, 2024, we had $437.4 million in available borrowing capacity with the FHLB, which includes our Ideal Way Line of Credit. We have the ability to increase our borrowing capacity with the FHLB by pledging additional investment securities or additional loans.
Previous wording
The Company has an available line of credit of $72.2 million with the FRB Discount Window at an interest rate determined and reset on a daily basis. Borrowings from the FRB Discount Window are secured by certain securities from the Company’s investment portfolio not otherwise pledged. As of March 31, 2024 and December 31, 2023, there were no advances outstanding under either of these lines.
Current wording
At June 30, 2024, we had available borrowing capacity of $403.8 million with the Federal Reserve Bank Discount Window (“FRB Discount Window”) at an interest rate determined and reset on a daily basis. Borrowings from the FRB Discount Window are secured by certain commercial and industrial loans and securities from the Company’s investment portfolio, not otherwise pledged. As of June 30, 2024 and December 31, 2023, there were no advances outstanding under either of these lines.
Previous wording
In addition, we have available lines of credit of $15.0 million and $10.0 million with other correspondent banks. Interest rates on these lines are determined and reset on a daily basis by each respective bank. At March 31, 2024 and December 31, 2023, we did not have an outstanding balance under either of these lines of credit. In addition, we may enter into reverse repurchase agreements with approved broker-dealers. Reverse repurchase agreements are agreements that allow us to borrow money using our securities as collateral.
Current wording
In addition, the Company also maintains unsecured lines of credits totaling $25.0 with two correspondent banks. Interest rates on these lines are determined and reset on a daily basis by each respective bank. At June 30, 2024 and December 31, 2023, there were no borrowings outstanding under these lines of credit. In addition, we may enter into reverse repurchase agreements with approved broker-dealers. Reverse repurchase agreements are agreements that allow us to borrow money using our securities as collateral.
Previous wording
We also have outstanding at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. We are also obligated under agreements with the FHLB to repay borrowed funds and are obligated under leases for certain of our branches and equipment.
Current wording
The Company has outstanding at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. We are also obligated under agreements with the FHLB to repay borrowed funds and are obligated under leases for certain of our branches and equipment.
Previous wording
The Company’s primary activities are the origination of commercial real estate loans, commercial and industrial loans and residential real estate loans, as well as and the purchase of mortgage-backed and other investment securities. At March 31, 2024, the Company had approximately $95.9 million in loan commitments and letters of credit to borrowers and approximately $350.7 million in available home equity and other unadvanced lines of credit.
Current wording
The Company’s primary activities are the origination of commercial real estate loans, commercial and industrial loans and residential real estate loans, as well as and the purchase of mortgage-backed and other investment securities. At June 30, 2024, the Company had approximately $156.3 million in loan commitments and letters of credit to borrowers and approximately $337.2 million in available home equity and other unadvanced lines of credit.
Previous wording
Deposit inflows and outflows are affected by the level of interest rates, the products and interest rates offered by competitors and by other factors. At March 31, 2024, time deposit accounts scheduled to mature within one year totaled $615.7 million. Based on the Company’s deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain on deposit. We monitor our liquidity position frequently and anticipate that it will have sufficient funds to meet our current funding commitments for the next 12 months and beyond.
Current wording
Deposit inflows and outflows are affected by the level of interest rates, the products and interest rates offered by competitors and by other factors. At June 30, 2024, time deposit accounts scheduled to mature within one year totaled $654.5 million, or 97.4% of the time deposit portfolio. Based on the Company’s deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain on deposit. We monitor our liquidity position frequently and anticipate that it will have sufficient funds to meet our current funding commitments for the next 12 months and beyond.
Previous wording
The Company entered into a long-term contractual obligation with a vendor for use of its core provider and ancillary services beginning in 2016. Total remaining contractual obligations outstanding with this vendor as of March 31, 2024 were estimated to be $9.5 million, with $5.0 million expected to be paid within one year and the remaining $4.5 million to be paid within the next three years. Further, the Company has operating leases for certain of its banking offices and ATMs. Our leases have remaining lease terms of less than one year to fourteen years, some of which include options to extend the leases for additional five-year terms up to ten years. Undiscounted lease liabilities totaled $9.9 million as of March 31, 2024. Principal payments expected to be made on our lease liabilities during the twelve months ended March 31, 2025 were $1.5 million. The remaining lease liability payments totaled $8.4 million and are expected to be made after March 31, 2025.
Current wording
The Company entered into a long-term contractual obligation with a vendor for use of its core provider and ancillary services beginning in 2016. Total remaining contractual obligations outstanding with this vendor as of June 30, 2024 were estimated to be $8.3 million, with $5.0 million expected to be paid within one year and the remaining $3.3 million to be paid within the next three years. Further, the Company has operating leases for certain of its banking offices and ATMs. Our leases have remaining lease terms of less than one year to fourteen years, some of which include options to extend the leases for additional five-year terms up to ten years. Undiscounted lease liabilities totaled $9.5 million as of June 30, 2024. Principal payments expected to be made on our lease liabilities during the twelve months ended June 30, 2024 were $1.4 million. The remaining lease liability payments totaled $8.1 million and are expected to be made after June 30, 2025.
Previous wording
In addition, the Company completed an offering of $20 million in aggregate principal amount of its 4.875% Notes to certain qualified institutional buyers in a private placement transaction on April 20, 2021. Unless earlier redeemed, the Notes mature on May 1, 2031. At March 31, 2024, $19.7 million aggregate principle amount of the Notes was outstanding. The Notes will bear interest from the initial issue date to, but excluding, May 1, 2026, or the earlier redemption date, at a fixed rate of 4.875% per annum, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year, beginning August 1, 2021, and from and including May 1, 2026, but excluding the maturity date or earlier redemption date, equal to the benchmark rate, which is the 90-day average secured overnight financing rate, plus 412 basis points, determined on the determination date of the applicable interest period, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year. The Company may also redeem the Notes, in whole or in part, on or after May 1, 2026, and at any time upon the occurrence of certain events, subject in each case to the approval of the Board of Governors of the Federal Reserve.
Current wording
In addition, the Company completed an offering of $20 million in aggregate principal amount of its 4.875% fixed-to-floating rate subordinated notes (the “Notes”) to certain qualified institutional buyers in a private placement transaction on April 20, 2021. Unless earlier redeemed, the Notes mature on May 1, 2031. At June 30, 2024, $19.7 million aggregate principle amount of the Notes was outstanding. The Notes will bear interest from the initial issue date to, but excluding, May 1, 2026, or the earlier redemption date, at a fixed rate of 4.875% per annum, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year, beginning August 1, 2021, and from and including May 1, 2026, but excluding the maturity date or earlier redemption date, equal to the benchmark rate, which is the 90-day average secured overnight financing rate, plus 412 basis points, determined on the determination date of the applicable interest period, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year. The Company may also redeem the Notes, in whole or in part, on or after May 1, 2026, and at any time upon the occurrence of certain events, subject in each case to the approval of the Board of Governors of the Federal Reserve.
Previous wording
Our actual capital ratios of March 31, 2024 and December 31, 2023 are also presented in the following table.
Current wording
The Company’s and Bank’s regulatory capital ratios as of June 30, 2024 and December 31, 2023 are presented in the table below.
Previous wording
The Company does not have any off-balance sheet arrangements, other than noted above under Material Cash Commitments, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Current wording
The Company does not have any off-balance sheet arrangements, other than noted above under Material Cash Commitments, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Rearranged current paragraphs (7)
Current report — wording carried from elsewhere
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND JUNE 30, 2023
Current report — wording carried from elsewhere
The following tables set forth the information relating to our average balance and net interest income for the six months ended June 30, 2024 and 2023, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing interest income by the average balance of interest-earning assets and interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets.
Current report — wording carried from elsewhere
The following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest and dividend income and interest expense during the periods indicated. Information is provided in each category with respect to: (1) interest income changes attributable to changes in volume (changes in volume multiplied by prior rate); (2) interest income changes attributable to changes in rate (changes in rate multiplied by prior volume); and (3) the net change.
Current report — wording carried from elsewhere
The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Current report — wording carried from elsewhere
Provision for (Reversal of) Credit Losses.
Current report — wording carried from elsewhere
During the six months ended June 30, 2024, the Company recorded a reversal of credit losses of $844,000, compared to a provision for credit losses of $32,000 during the six months ended June 30, 2023. The decrease was primarily due to changes in the loan mix as well as changes in the economic environment and related adjustments to the quantitative components of the CECL methodology. The provision for credit losses was determined by a number of factors: the continued strong credit performance of the Company’s loan portfolio, changes in the loan portfolio mix and Management’s consideration of existing economic conditions and the economic outlook from the Federal Reserve’s actions to control inflation. Management continues to monitor macroeconomic variables related to increasing interest rates, inflation and the concerns of an economic downturn, and believes it is appropriately reserved for the current economic environment.
Current report — wording carried from elsewhere
Although we believe that we have established and maintained the allowance for credit losses at adequate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment.