# FIRST UNITED CORP/MD/ (FUNC) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from FIRST UNITED CORP/MD/'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/763907/000155837025003375/func-20241231x10k.htm
Accession: 0001558370-25-003375
Filing date: 2025-03-20
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/FUNC/
All MD&A years: /company/FUNC/mda/
Previous year: /company/FUNC/mda/fy2023/ (FY 2023)
Next year: /company/FUNC/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and notes thereto for the years ended December 31, 2024 and 2023, which are included in Item 8 of Part II of this annual report.

Overview

First United Corporation is a financial holding company that, through the Bank and its non-bank subsidiaries, provides an array of financial products and services primarily to customers in four Western Maryland counties and three Northeastern West Virginia counties. Its principal operating subsidiary is the Bank, which consists of a community banking network of 22 branch offices located throughout its market areas. Our primary sources of revenue are interest income earned from our loan and investment securities portfolios and fees earned from financial services provided to customers.

For the years ended December 31, 2024 and 2023, net income was $20.6 million and $15.1 million, respectively, on a GAAP (generally accepted accounting principles) basis.  Net income for the year ended December 31, 2024 was inclusive of $0.4 million, net of tax, in increased expenses related to branch closures that occurred on February 29, 2024 and adjusted net income was $21.0 million on a non-GAAP basis.  Net income for the year ended December 31, 2023 was

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inclusive of a $3.3 million loss, net of tax, on the sale of securities and $0.5 million, net of tax, in increased expenses related to announced branch closures and adjusted net income was $18.8 million on a non-GAAP basis.  

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The provision for credit losses was $2.9 million for the year ended December 31, 2024 and $1.7 million for the year ended December 31, 2023.  Net charge-offs of $2.2 million were recorded for the year ended December 31, 2024, compared to $0.9 million for 2023. The ratio of the ACL to loans outstanding was 1.23% at December 31, 2024 compared to 1.24% at December 31, 2023.  

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Other operating income, including net gains/(losses) on sales of mortgage loans and sales of investment securities, increased by approximately $5.4 million when compared to 2023.  This increase was primarily related to a $4.2 million loss recognized through the sale of available-for-sale (“AFS”) investment securities as part of a strategic balance sheet restructuring in the fourth quarter of 2023. Wealth management income, which includes trust department revenue and brokerage commissions, increased by $1.1 million due to improving market conditions, increased annuity sales and growth in new and existing customer relationships.  Service charge and debit card income was stable when comparing 2024 to 2023.

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Other operating expenses decreased by $0.6 million when compared to the year ended December 31, 2023.  The decrease was primarily attributable to a $1.0 million decrease in occupancy and equipment expenses related primarily to the branch closures announced in 2023, a $0.2 million decrease in marketing expenses, and a $0.2 million decrease in professional services expenses. Other miscellaneous expenses decreased by $0.4 million driven by a $0.5 million decrease in check fraud expenses.  These decreases were partially offset by $0.5 million in increased salaries and employee benefits related to increased incentives, 401(k) expenses, wellness expenses, and reduced offsets related to loan origination, which were partially offset by reductions in life and health insurance costs.  Net OREO costs increased by $0.4 million due to gains on the sale of OREO recognized in 2023, and data processing expenses increased by $0.4 million.

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Outstanding loans of $1.5 billion at December 31, 2024 reflected growth of $74.1 million in 2024.  Since December 31, 2023, commercial real estate loans increased by $32.7 million, acquisition and development loans increased by $18.2 million, commercial and industrial loans increased by $12.9 million, residential mortgage loans increased by $18.9 million, and consumer loans decreased by $8.6 million.

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Net interest income, on a non-GAAP, fully-taxable equivalent (“FTE”) basis, increased by $2.7 million in 2024 when compared to 2023.  Interest income increased by $10.4 million.   Average loan balances increased by $87.2 million and the overall yield increased by 53 basis points in correlation with the elevated rate environment as new loans were booked at higher rates and adjustable-rate loans repriced to higher rates.  Interest expense on deposits increased by $6.6 million while the average deposit balances increased by $19.4 million, driven by increases in average balances of $6.7 million in interest-bearing demand deposits, $5.3 million in retail time deposits, and $80.1 million in money market balances, partially offset by decreases in savings balances of $39.1 million and brokered time deposits of $33.5 million.  Interest expense on short-term borrowings increased by $1.3 million due to the Bank’s utilization of the BTFP program in 2024.  The increased interest expense resulted in an overall increase of 56 basis points on the cost of interest-bearing liabilities.  The net interest margin was 3.38% and 3.26% for the years ended December 31, 2024 and 2023, respectively.

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Total deposits at December 31, 2024 increased by $23.9 million when compared to December 31, 2023.  Interest-bearing demand deposits increased by $35.9 million in 2024, which included the shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts due to management’s strategy to release pledging of investment securities for municipalities to provide additional liquidity.  Money market accounts increased by $61.5 million due primarily to the expansion of current and new relationships throughout the year and a shift from certificates of deposit.  Traditional savings accounts decreased by $20.3 million and time deposits decreased by $52.4 million.  The decrease in time deposits was due to a decrease of $22.4 million in retail CDs related to maturities of a nine-month special CD promotion in 2023 and the maturity and repayment of $30.0 million in brokered CDs during the year.  The Bank has worked closely with customers as these retail CDs mature to transition them to other deposit and wealth management products offered by the Bank.

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Estimates and Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. (See Note 1 to the Consolidated Financial Statements.)  On an on-going basis, management evaluates estimates and bases those estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Corporation identifies the following critical accounting policies may affect our more significant judgments and estimates used in the preparation of the Consolidated Financial Statements.

Allowance for Credit Losses- Loans

The ACL represents an amount which, in management’s judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience.  The ACL is measured and recorded upon the initial recognition of a financial asset.  The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased by a provision or decreased by a recovery for credit losses, which is recorded as a current period operating expense.

Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates.  The reasonableness of the ACL is reviewed quarterly by management.

Management believes that it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP.  However, the determination of the ACL requires significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed.  While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial conditions of borrowers.

The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources.  Management evaluates the variability of market conditions by examining the peak and trough of economic cycles.  These peaks and troughs are used to stress the base case model to develop a range of potential outcomes.  Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio.  For the year ended December 31, 2024 the range of outcomes would produce a 9.0% reduction or a 72.2% increase in reserves based on the best-case and worst-case scenarios, respectively.

The ACL is also discussed below in Item 7 under the heading “Allowance for Credit Losses” and in Note 5 to the Consolidated Financial Statements.

Liquidity Sources

As of December 31, 2024, the Corporation had approximately $140.0 million in unsecured lines of credit with its correspondent banks, $36.6 million available through a secured line of credit with the Federal Reserve Discount Window, and approximately $213.6 million of secured borrowings with the FHLB.   Additionally, the Corporation has access to the brokered money market and certificates of deposit markets.

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Capital

The Bank’s capital ratios are strong, and the Bank is considered to be well-capitalized by applicable regulatory measures.

Adoption of New Accounting Standards and Effects of New Accounting Pronouncements

Note 1 to the Consolidated Financial Statements discusses new accounting pronouncements that, when adopted, could affect our future consolidated financial statements.

CONSOLIDATED STATEMENT OF INCOME REVIEW

Net Interest Income

Net interest income is our largest source of operating revenue and is the difference between the interest that we earn on our interest-earning assets and the interest expense we incur on our interest-bearing liabilities. For analytical and discussion purposes, net interest income is adjusted to an FTE basis to facilitate performance comparisons between taxable and tax-exempt assets by increasing tax-exempt income by an amount equal to the federal income taxes that would have been paid if this income were taxable at the statutorily applicable rate. This is a non-GAAP disclosure, and it is not materially different than the corresponding GAAP disclosure.

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The table below summarizes net interest income for 2024 and 2023.

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","GAAP","\u200b","Non-GAAP - FTE"],["(in thousands)","","2024","","2023","","2024","","2023"],["Interest income","\u200b","$","91,993","\u200b","$","81,156","\u200b","$","92,222","\u200b","$","81,783"],["Interest expense","\u200b","\u200b","32,015","\u200b","\u200b","24,286","\u200b","\u200b","32,015","\u200b","\u200b","24,286"],["Net interest income","\u200b","$","59,978","\u200b","$","56,870","\u200b","$","60,207","\u200b","$","57,497"],["Net interest margin %","\u200b","\u200b","3.36%","\u200b","\u200b","3.22%","\u200b","\u200b","3.38%","\u200b","\u200b","3.26%"]]
[[/GREPCENT_TABLE]]

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Net interest income, on a non-GAAP, FTE basis, increased by $2.7 million (4.7%) during the year ended December 31, 2024 when compared to the year ended December 31, 2023, driven by a $10.4 million (12.8%) increase in interest income, which was partially offset by an increase in interest expense of $7.7 million (31.8%).  The net interest margin, on an FTE basis, increased to 3.38% for the year ended December 31, 2024 from 3.26% for the year ended December 31, 2023.  

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Comparing the year ended December 31, 2024 with the year ended December 31, 2023, interest income increased by $10.4 million driven by an increase of $12.2 million in interest and fees on loans. The increase in interest on loans was primarily due to an increase of $87.2 million in average loan balance in 2024 when compared to 2023.  The rate earned on the loan portfolio increased by 53 basis points when comparing the year ended December 31, 2024 to the year ended December 31, 2023.  Investment income decreased by $1.3 million due to a $61.2 million reduction in average balances, which was partially offset by the 4-basis point increase in yield during 2024.  Other interest income decreased by $0.4 million during 2024 primarily due to a $10.0 million decrease in average balances held at the Federal Reserve in 2024 when compared to 2023.

The increase in interest expense for 2024 was driven by an increase in interest expense on deposits of $6.6 million due to an increase in average balances of $19.4 million and an increase in rate of 56 basis points.  Interest expense on short- term borrowings increased by $1.3 million due to a $10.5 million increase in average balances and a 222-basis point increase in rate due to utilization of the BTFP in 2024.

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As shown below, the composition of total interest income between 2024 and 2023 remained relatively stable.

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","% of Total Interest Income"],["\u200b","","2024","","2023"],["Interest and fees on loans","\u200b","89%","\u200b","86%"],["Interest on investment securities","\u200b","8%","\u200b","10%"],["Other","\u200b","3%","\u200b","4%"]]
[[/GREPCENT_TABLE]]

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The following table sets forth the average balances, net interest income and expense, and average yields and rates for our interest-earning assets and interest-bearing liabilities for 2024 and 2023:

Distribution of Assets, Liabilities and Shareholders’ Equity

Interest Rates and Interest Differential – Tax Equivalent Basis

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Years Ended December 31"],["\u200b","\u200b","2024","\u200b","2023","\u200b"],["(in thousands)","","Average Balance","","Interest","","Average Yield/ Rate","","Average Balance","","Interest","","Average Yield/ Rate"],["Assets","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans","\u200b","$","1,427,351","\u200b","$","81,819","\u200b","5.73","%","$","1,340,118","\u200b","$","69,631","\u200b","5.20","%"],["Investment Securities:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Taxable","\u200b","\u200b","285,661","\u200b","\u200b","6,760","\u200b","2.37","%","\u200b","335,888","\u200b","\u200b","7,173","\u200b","2.14","%"],["Non taxable","\u200b","\u200b","7,538","\u200b","\u200b","375","\u200b","4.97","%","\u200b","18,471","\u200b","\u200b","1,279","\u200b","6.92","%"],["Total","\u200b","\u200b","293,199","\u200b","\u200b","7,135","\u200b","2.43","%","\u200b","354,359","\u200b","\u200b","8,452","\u200b","2.39","%"],["Federal funds sold","\u200b","\u200b","55,117","\u200b","\u200b","2,874","\u200b","5.21","%","\u200b","65,131","\u200b","\u200b","3,409","\u200b","5.23","%"],["Interest-bearing deposits with other banks","\u200b","\u200b","2,009","\u200b","\u200b","91","\u200b","4.53","%","\u200b","2,585","\u200b","\u200b","93","\u200b","3.60","%"],["Other interest earning assets","\u200b","\u200b","4,565","\u200b","\u200b","303","\u200b","6.64","%","\u200b","4,048","\u200b","\u200b","198","\u200b","4.89","%"],["Total earning assets","\u200b","\u200b","1,782,241","\u200b","\u200b","92,222","\u200b","5.17","%","\u200b","1,766,241","\u200b","\u200b","81,783","\u200b","4.63","%"],["Allowance for credit losses","\u200b","\u200b","(18,064)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","(16,561)","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-earning assets","\u200b","\u200b","182,548","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","199,474","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total Assets","\u200b","$","1,946,725","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","1,949,154","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Liabilities and Shareholders\u2019 Equity","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-bearing demand deposits","\u200b","$","368,725","\u200b","$","6,288","\u200b","1.71","%","$","362,070","\u200b","$","4,814","\u200b","1.33","%"],["Interest-bearing money markets- retail","\u200b","\u200b","413,353","\u200b","\u200b","14,287","\u200b","3.46","%","\u200b","333,274","\u200b","\u200b","8,672","\u200b","2.60","%"],["Interest-bearing money markets- brokered","\u200b","\u200b","55","\u200b","\u200b","3","\u200b","5.45","%","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","0.00","%"],["Savings deposits","\u200b","\u200b","180,393","\u200b","\u200b","183","\u200b","0.10","%","\u200b","219,516","\u200b","\u200b","240","\u200b","0.11","%"],["Time deposits - Retail","\u200b","\u200b","147,193","\u200b","\u200b","4,226","\u200b","2.87","%","\u200b","141,921","\u200b","\u200b","2,872","\u200b","2.02","%"],["Time deposits - Brokered","\u200b","\u200b","15,697","\u200b","\u200b","841","\u200b","5.36","%","\u200b","49,209","\u200b","\u200b","2,600","\u200b","5.28","%"],["Short-term borrowings","\u200b","\u200b","58,444","\u200b","\u200b","1,477","\u200b","2.53","%","\u200b","47,968","\u200b","\u200b","147","\u200b","0.31","%"],["Long-term borrowings","\u200b","\u200b","92,213","\u200b","\u200b","4,710","\u200b","5.11","%","\u200b","94,271","\u200b","\u200b","4,941","\u200b","5.24","%"],["Total interest-bearing liabilities","\u200b","\u200b","1,276,073","\u200b","\u200b","32,015","\u200b","2.51","%","\u200b","1,248,229","\u200b","\u200b","24,286","\u200b","1.95","%"],["Non-interest-bearing deposits","\u200b","\u200b","468,137","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","512,496","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Other liabilities","\u200b","\u200b","33,326","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","32,320","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Shareholders\u2019 Equity","\u200b","\u200b","169,189","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","156,109","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total Liabilities and Shareholders\u2019 Equity","\u200b","$","1,946,725","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","$","1,949,154","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net interest income and spread","\u200b","\u200b","\u200b","\u200b","$","60,207","\u200b","2.66","%","\u200b","\u200b","\u200b","$","57,497","\u200b","2.68","%"],["Net interest margin","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","3.38","%","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","3.26","%"]]
[[/GREPCENT_TABLE]]

Notes:

[[GREPCENT_TABLE]]
[["(1)","The above table reflects the average rates earned or paid stated on an FTE basis assuming a tax rate of 21% for 2024 and 2023. Non-GAAP interest income on an FTE basis for the years ended December 31, 2024 and 2023 were $229 and $627, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(2)","The average balances of non-accrual loans for the years ended December 31, 2024 and 2023, which were reported in the average loan balances for these years, were $8,471 and $3,171, respectively."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(3)","Net interest margin is calculated as net interest income divided by average earning assets."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(4)","The average yields on investments are based on amortized cost."]]
[[/GREPCENT_TABLE]]

The following table sets forth an analysis of volume and rate changes in interest income and interest expense of our average interest-earning assets and average interest-bearing liabilities for 2024 and 2023. This table distinguishes between the changes related to average outstanding balances (changes in volume created by holding the interest rate

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constant) and the changes related to average interest rates (changes in interest income or expense attributed to average rates created by holding the outstanding balance constant).

Interest Variance Analysis (1)

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2024 Compared to 2023"],["(in thousands and tax equivalent basis)","","Volume","","Rate","","Net"],["Interest Income:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loans","\u200b","$","4,536","\u200b","$","7,652","\u200b","$","12,188"],["Taxable investments","\u200b","\u200b","(1,075)","\u200b","\u200b","662","\u200b","\u200b","(413)"],["Non-taxable investments","\u200b","\u200b","(757)","\u200b","\u200b","(147)","\u200b","\u200b","(904)"],["Federal funds sold","\u200b","\u200b","(524)","\u200b","\u200b","(11)","\u200b","\u200b","(535)"],["Interest-bearing deposits","\u200b","\u200b","(21)","\u200b","\u200b","19","\u200b","\u200b","(2)"],["Other interest earning assets","\u200b","\u200b","25","\u200b","\u200b","80","\u200b","\u200b","105"],["Total interest income","\u200b","\u200b","2,184","\u200b","\u200b","8,255","\u200b","\u200b","10,439"],["Interest Expense:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Interest-bearing demand deposits","\u200b","\u200b","89","\u200b","\u200b","1,385","\u200b","\u200b","1,474"],["Interest-bearing money markets- retail","\u200b","\u200b","2,082","\u200b","\u200b","3,533","\u200b","\u200b","5,615"],["Interest-bearing money markets- brokered","\u200b","\u200b","55","\u200b","\u200b","(52)","\u200b","\u200b","3"],["Savings deposits","\u200b","\u200b","(43)","\u200b","\u200b","(14)","\u200b","\u200b","(57)"],["Time deposits - retail","\u200b","\u200b","106","\u200b","\u200b","1,248","\u200b","\u200b","1,354"],["Time deposits - brokered","\u200b","\u200b","(1,769)","\u200b","\u200b","10","\u200b","\u200b","(1,759)"],["Short-term borrowings","\u200b","\u200b","32","\u200b","\u200b","1,298","\u200b","\u200b","1,330"],["Long-term borrowings","\u200b","\u200b","(108)","\u200b","\u200b","(123)","\u200b","\u200b","(231)"],["Total interest expense","\u200b","\u200b","444","\u200b","\u200b","7,285","\u200b","\u200b","7,729"],["Net interest income","\u200b","$","1,740","\u200b","$","970","\u200b","$","2,710"]]
[[/GREPCENT_TABLE]]

Note:

[[GREPCENT_TABLE]]
[["(1)","The change in interest income/expense due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each."]]
[[/GREPCENT_TABLE]]

Provision for Credit Losses

The provision for credit losses was $2.9 million for the year ended December 31, 2024 and $1.7 million for the year ended December 31, 2023.  Net charge-offs of $2.2 million were recorded for the year ended December 31, 2024 compared to net charge-offs of $0.9 million for 2023. The ratio of the ACL to loans outstanding was 1.23% at December 31, 2024 compared to 1.24% at December 31, 2023.  The ACL reflects a level commensurate with the risk inherent in our loan portfolio.  

​

Effective January 1, 2023, we adopted CECL, which replaced the incurred loss impairment model with an expected loss model.  Our CECL methodology introduced a modified discounted cash flow methodology based on expected cash flow changes in the future.  

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Other Operating Income

The following table shows the major components of other operating income for the past two years, exclusive of net gains, and the percentage changes during these years:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","","2024","","2023","","% Change"],["Service charges on deposit accounts","\u200b","$","2,220","\u200b","$","2,198","\u200b","1.00%"],["Other service charges","\u200b","\u200b","887","\u200b","\u200b","929","\u200b","(4.52)%"],["Trust department income","\u200b","\u200b","9,094","\u200b","\u200b","8,282","\u200b","9.80%"],["Debit card income","\u200b","\u200b","4,065","\u200b","\u200b","4,101","\u200b","(0.88)%"],["Bank owned life insurance","\u200b","\u200b","1,345","\u200b","\u200b","1,261","\u200b","6.66%"],["Brokerage commissions","\u200b","\u200b","1,449","\u200b","\u200b","1,160","\u200b","24.91%"],["Other income","\u200b","\u200b","351","\u200b","\u200b","400","\u200b","(12.25)%"],["Total other operating income","\u200b","$","19,411","\u200b","$","18,331","\u200b","5.89%"]]
[[/GREPCENT_TABLE]]

​

Other operating income, exclusive of gains, increased by $1.1 million for the year ended December 31, 2024 when compared to the same period of 2023.  The increase was primarily a result of an increase of $1.1 million in wealth management income due to increased market values of assets under management, increased annuity sales and growth in new and existing customer relationships.

​

Net gains of $0.4 million were reported for the year ended December 31, 2024 compared to net losses of $3.9 million for the same period in 2023.   The Corporation recognized a $4.2 million loss in the sale of AFS investment securities as part of the balance sheet restructuring in the fourth quarter of 2023.  Gains on sales of residential mortgages were $0.4 million for the years ending December 31, 2024 and 2023.

​

The following table shows the components of net gains for the year ended December 31, 2024 and net losses for the year ended December 31, 2023.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","","2024","","2023"],["Net gains/(losses):","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Available-for-sale securities:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Realized losses from sales and calls","\u200b","\u200b","\u2014","\u200b","\u200b","(4,214)"],["Gains on sale of loans held for sale","\u200b","\u200b","414","\u200b","\u200b","381"],["Loss on disposal of fixed assets","\u200b","\u200b","\u2014","\u200b","\u200b","(29)"],["Net gains/(losses)","\u200b","$","414","\u200b","$","(3,862)"]]
[[/GREPCENT_TABLE]]

​

​

​

38

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Other Operating Expense

The following table compares the major components of other operating expense for 2024 and 2023:

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","","2024","","2023","","% Change"],["Salaries and employee benefits","\u200b","$","28,029","\u200b","$","27,520","\u200b","1.85%"],["FDIC premiums","\u200b","\u200b","1,070","\u200b","\u200b","992","\u200b","7.86%"],["Equipment","\u200b","\u200b","2,675","\u200b","\u200b","3,157","\u200b","(15.27)%"],["Occupancy","\u200b","\u200b","2,878","\u200b","\u200b","3,441","\u200b","(16.36)%"],["Data processing","\u200b","\u200b","5,761","\u200b","\u200b","5,384","\u200b","7.00%"],["Marketing","\u200b","\u200b","674","\u200b","\u200b","833","\u200b","(19.09)%"],["Professional services","\u200b","\u200b","1,948","\u200b","\u200b","2,133","\u200b","(8.67)%"],["Contract labor","\u200b","\u200b","597","\u200b","\u200b","616","\u200b","(3.08)%"],["Line rentals","\u200b","\u200b","408","\u200b","\u200b","466","\u200b","(12.45)%"],["Total OREO expenses/(income), net","\u200b","\u200b","271","\u200b","\u200b","(89)","\u200b","404.49%"],["Investor relations","\u200b","\u200b","293","\u200b","\u200b","345","\u200b","(15.07)%"],["Contributions","\u200b","\u200b","234","\u200b","\u200b","229","\u200b","2.18%"],["Other expenses","\u200b","\u200b","4,802","\u200b","\u200b","5,216","\u200b","(7.94)%"],["Total other operating expense","\u200b","$","49,640","\u200b","$","50,243","\u200b","(1.20)%"]]
[[/GREPCENT_TABLE]]

​

Other operating expenses decreased by $0.6 million for the year ended December 31, 2024 when compared to 2023.  The decrease was primarily attributable to a $1.0 million decrease in occupancy and equipment expenses related to the branch closures announced in 2023, a $0.2 million decrease in marketing expenses, and a $0.2 million decrease in professional services expenses. Other miscellaneous expenses decreased by $0.4 million driven by a $0.5 million decrease in check fraud expenses.  These decreases were partially offset by $0.5 million in increased salaries and employee benefits related to increased incentives, 401(k) expenses, wellness expenses, and reduced offsets related to loan origination costs, which were partially offset by reductions in life and health insurance costs.  Net OREO costs increased $0.4 million due to gains on the sale of OREO recognized in 2023, and $0.4 million in increased data processing expenses.

​

Applicable Income Taxes

​

We recognized a tax expense of $6.7 million in 2024 compared to a tax expense of $4.4 million in 2023. See the discussion under “Income Taxes” in Note 12 to the Consolidated Financial Statements presented elsewhere in this annual report for a detailed analysis of our deferred tax assets and liabilities.  Our effective income tax rates as a percentage of income for the years ended December 31, 2024 and December 31, 2023 were 24.5% and 22.7%, respectively.  The increase in the tax rate for the 2024 period was primarily related to changes in allocations of state income tax expense.

​

At December 31, 2024, the Corporation had Maryland Net Operating Losses (“NOLs”) of $36.3. million for which a deferred tax asset of $2.4 million has been recorded. There was also a Maryland state interest expense carryforward of $3.9 million, for which a deferred tax asset of $0.3 million has been recorded.  There has been and continues to be a full valuation allowance on these NOLs and interest expense deferred tax assets, based on management’s belief that it is more likely than not that these NOLs will not be realized prior to the expiration of their carry-forward periods because the Corporation will not generate sufficient taxable income in the future to fully utilize the NOLs. The valuation allowance was $2.6 million and $2.8 million at December 31, 2024 and 2023, respectively.

We have concluded that no valuation allowance is deemed necessary for our remaining federal and state deferred tax assets at December 31, 2024, as it is more likely than not that they will be realized based on the expected reversal of deferred tax liabilities, the generation of future income sufficient to realize the deferred tax assets as they reverse, and the ability to implement tax planning strategies to prevent the expiration of any carry-forward periods.

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GAAP and Non-GAAP Measures

The following tables sets forth certain selected financial data for the years ended December 31, 2024 and 2023 under GAAP (as reported) and non-GAAP.  A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with GAAP in the United States.  The Corporation’s management believes that the presentation of non-GAAP financial measures provides investors with a greater understanding of the Corporation’s operating results in addition to the results measured in accordance with GAAP.  While management uses these non-GAAP measures in its analysis of the Corporation’s performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP.

The following non-GAAP financial measures exclude losses on the sale of AFS securities in 2023 and accelerated depreciation and lease termination expenses related to the branch closures that occurred on February 29, 2024.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the year ended","\u200b"],["\u200b","\u200b","December 31,","\u200b"],["\u200b","","2024","","2023"],["Per Share Data","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Basic net income per common share - as reported","\u200b","$","3.15","\u200b","$","2.25","\u200b"],["Basic net income per common share - non-GAAP","\u200b","\u200b","3.21","\u200b","\u200b","2.81","\u200b"],["Diluted net income per common share - as reported","\u200b","$","3.15","\u200b","$","2.25","\u200b"],["Diluted net income per common share - non-GAAP","\u200b","\u200b","3.21","\u200b","\u200b","2.81","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Significant Ratios:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Return on Average Assets - as reported","\u200b","\u200b","1.06","%","\u200b","0.77","%"],["Loss on sale of AFS securities, net of income tax effect","\u200b","\u200b","\u2014","\u200b","\u200b","0.17","\u200b"],["Accelerated depreciation and lease termination expenses, net of income tax effect","\u200b","\u200b","0.02","\u200b","\u200b","0.02","\u200b"],["Adjusted Return on Average Assets (non-GAAP)","\u200b","\u200b","1.08","%","\u200b","0.96","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Return on Average Equity - as reported","\u200b","\u200b","12.16","%","\u200b","9.65","%"],["Loss on sale of AFS securities, net of income tax effect","\u200b","\u200b","\u2014","\u200b","\u200b","2.09","\u200b"],["Accelerated depreciation and lease termination expenses, net of income tax effect","\u200b","\u200b","0.26","\u200b","\u200b","0.31","\u200b"],["Adjusted Return on Average Equity (non-GAAP)","\u200b","\u200b","12.42","%","\u200b","12.05","%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

40

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","Year Ended"],["(in thousands, except for per share amount)","\u200b","2024","","2023"],["Net income - as reported","\u200b","$","20,569","\u200b","$","15,060"],["Adjustments:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loss on sale of securities","\u200b","\u200b","\u2014","\u200b","\u200b","4,214"],["Accelerated depreciation and lease termination expenses","\u200b","\u200b","562","\u200b","\u200b","623"],["Income tax effect of adjustment","\u200b","\u200b","(137)","\u200b","\u200b","(1,097)"],["Adjusted net income (non-GAAP)","\u200b","$","20,994","\u200b","$","18,800"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Basic and diluted earnings per share - as reported","\u200b","$","3.15","\u200b","$","2.25"],["Adjustments:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Loss on sale of securities","\u200b","\u200b","\u2014","\u200b","\u200b","0.63"],["Accelerated depreciation and lease termination expenses","\u200b","\u200b","0.08","\u200b","\u200b","0.09"],["Income tax effect of adjustment","\u200b","\u200b","(0.02)","\u200b","\u200b","(0.16)"],["Adjusted basic and diluted earnings per share (non-GAAP)","\u200b","$","3.21","\u200b","$","2.81"]]
[[/GREPCENT_TABLE]]

​

CONSOLIDATED BALANCE SHEET REVIEW

Overview

Total assets at December 31, 2024 were $2.0 billion, representing a $67.2 million increase since December 31, 2023.  During 2024, cash and interest-bearing deposits in other banks increased by $28.6 million.  The investment portfolio decreased by $41.5 million primarily due to the maturities of $37.5 million of U.S. Treasury bonds during the year, normal principal amortization and maturities of our mortgage-backed securities and municipal portfolios.  Cash proceeds from investments were shifted to gross loans, which increased by $74.1 million. OREO decreased by $1.4 million due to sales of properties.  Pension assets increased by $6.6 million driven by increased market values.  Deferred tax assets decreased by $1.1 million as we experienced increased fair market values on AFS securities and pension assets when compared to December 31, 2023.

​

Total liabilities at December 31, 2024 were $1.8 billion, representing a $49.7 million increase since December 31, 2023.  Total deposits increased by $23.9 million when compared to December 31, 2023 related to increases in interest-bearing demand deposits of $35.9 million and money markets of $61.5 million, partially offset by the decrease of savings deposits by $20.3 million, retail time deposits of $22.4 million, and the repayment of $30.0 million in brokered certificates of deposits.  Short-term borrowings increased by $20.0 million since December 31, 2023, which were comprised of $50.0 million in overnight borrowings from the Federal Reserve offset by a shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts as a result of management’s strategy to release pledging of investment securities for municipalities in order to allow those securities to be available for liquidity. The overnight borrowings were replaced with brokered certificates of deposit in January 2025.  Long-term borrowings increased by $10.0 million in 2024.  Maturities of FHLB advances of $40.0 million in March and $40.0 million in September were fully repaid.  During the third quarter and after the Federal Reserve’s announcement that rates would be reduced by 50 basis points, management made the strategic decision to lock in borrowing costs by placing $90.0 million in FHLB advances with maturities of 12- and 18-months at a weighted average rate of 3.89%.  Of this amount, $41.1 million was utilized to prepay the principal and accrued interest of the BTFP borrowings at a rate of 4.87% that was scheduled to mature in January of 2025 and approximately $30.0 million was utilized to repay overnight borrowings related to the repayment of the $40.0 million FHLB advance that matured in September at a rate of 4.53%.  The remainder was used to fund loan growth in the fourth quarter of 2024.

​

​

​

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​

As indicated below, the total interest-earning asset mix remained relatively constant at December 31, 2024 as compared to December 31, 2023. The mix for each year is illustrated below.  

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year End Percentage of Total Assets"],["\u200b","","2024","","2023"],["Cash and cash equivalents","\u200b","4%","\u200b","3%"],["Net loans","\u200b","74%","\u200b","73%"],["Investments","\u200b","14%","\u200b","16%"]]
[[/GREPCENT_TABLE]]

​

​

The year-end total liability mix has remained stable during the two-year period as illustrated below.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year End Percentage of Total Liabilities"],["\u200b","","2024","","2023"],["Total deposits","\u200b","88%","\u200b","89%"],["Total borrowings","\u200b","10%","\u200b","9%"]]
[[/GREPCENT_TABLE]]

​

Loan Portfolio

The Bank is actively engaged in originating loans to customers primarily in Allegany County, Frederick County, Garrett County, and Washington County in Maryland, and in Berkeley County, Mineral County, and Monongalia County, in West Virginia; and the surrounding regions of Maryland, West Virginia, Virginia and Pennsylvania. We have policies and procedures designed to mitigate credit risk and to maintain the quality of our loan portfolio. These policies include underwriting standards for new credits as well as continuous monitoring and reporting policies for asset quality and the adequacy of the ACL. These policies, coupled with ongoing training efforts, have provided effective checks and balances for the risk associated with the lending process. Lending authority is based on the type of the loan, and the experience of the lending officer.

Commercial loans are collateralized primarily by real estate and, to a lesser extent, equipment and vehicles. Unsecured commercial loans represent an insignificant portion of total commercial loans. Residential mortgage loans are collateralized by the related property. Generally, a residential mortgage loan exceeding a specified internal loan-to-value ratio requires private mortgage insurance. Installment loans are typically collateralized, with loan-to-value ratios which are established based on the financial condition of the borrower. We also have made unsecured consumer loans to qualified borrowers meeting our underwriting standards. Additional information about our loans and underwriting policies can be found in Item 1 of Part I of this annual report under the heading “Banking Products and Services”.

The following table sets forth the composition of our loan portfolio. Historically, our policy has been to make the majority of our loan commitments in our market areas. We had no foreign loans in our portfolio as of December 31 for any of the years presented.

Summary of Loan Portfolio

The following table presents the composition of our loan portfolio as of December 31 for the past two years:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in millions)","","2024","","2023"],["Commercial real estate","\u200b","$","526.4","\u200b","$","493.7"],["Acquisition and development","\u200b","\u200b","95.3","\u200b","\u200b","77.1"],["Commercial and industrial","\u200b","\u200b","287.5","\u200b","\u200b","274.6"],["Residential mortgage","\u200b","\u200b","518.8","\u200b","\u200b","499.9"],["Consumer","\u200b","\u200b","52.8","\u200b","\u200b","61.4"],["Total Loans","\u200b","$","1,480.8","\u200b","$","1,406.7"]]
[[/GREPCENT_TABLE]]

42

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​

Outstanding loans of $1.5 billion at December 31, 2024 reflected growth of $74.1 million in 2024.  Since December 31, 2023, commercial real estate loans increased by $32.7 million, acquisition and development loans increased by $18.2 million, commercial and industrial loans increased by $12.9 million, residential mortgage loans increased $18.9 million, and consumer loans decreased by $8.6 million.

​

New commercial loan production for the year ended December 31, 2024 was approximately $189.5 million.  The pipeline of commercial loans as of December 31, 2024 was approximately $11.5 million.  Commercial amortization and payoffs were approximately $114.1 million through December 31, 2024 due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.

​

New residential mortgage loan production for year ended December 31, 2024 was approximately $73.5 million, with most of this production comprised of in-house loans.  The pipeline of in-house, portfolio loans as of December 31, 2024 was $5.3 million.  The residential mortgage production level declined in the fourth quarter of 2024 due to the increasing interest rates and seasonality of this line of business.  

​

The following table presents loans in our commercial real estate portfolio by industry type at December 31, 2024.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","Non-owner-occupied","\u200b","Owner-occupied","\u200b","Multi-family","\u200b","Total"],["Accommodations and food services","$","71,234","\u200b","$","5,537","\u200b","$","-","\u200b","$","76,771"],["Administration and support, waste management, and remediation services","\u200b","-","\u200b","\u200b","1,413","\u200b","\u200b","-","\u200b","\u200b","1,413"],["Agriculture, forestry, fishing and hunting","\u200b","-","\u200b","\u200b","2,028","\u200b","\u200b","-","\u200b","\u200b","2,028"],["Arts, entertainment and recreation","\u200b","-","\u200b","\u200b","4,428","\u200b","\u200b","-","\u200b","\u200b","4,428"],["Construction","\u200b","2,036","\u200b","\u200b","5,733","\u200b","\u200b","-","\u200b","\u200b","7,769"],["Educational services","\u200b","-","\u200b","\u200b","873","\u200b","\u200b","-","\u200b","\u200b","873"],["Finance and insurance","\u200b","-","\u200b","\u200b","107","\u200b","\u200b","-","\u200b","\u200b","107"],["Health care and social assistance","\u200b","6,465","\u200b","\u200b","12,683","\u200b","\u200b","-","\u200b","\u200b","19,148"],["Manufacturing","\u200b","-","\u200b","\u200b","12,906","\u200b","\u200b","-","\u200b","\u200b","12,906"],["Other services (except public services)","\u200b","2,207","\u200b","\u200b","16,882","\u200b","\u200b","308","\u200b","\u200b","19,397"],["Professional, scientific and technical services","\u200b","-","\u200b","\u200b","2,091","\u200b","\u200b","-","\u200b","\u200b","2,091"],["Public administration","\u200b","1,438","\u200b","\u200b","960","\u200b","\u200b","-","\u200b","\u200b","2,398"],["Commercial rental properties","\u200b","4,000","\u200b","\u200b","3,335","\u200b","\u200b","400","\u200b","\u200b","7,735"],["Residential rental properties","\u200b","178,864","\u200b","\u200b","86,758","\u200b","\u200b","-","\u200b","\u200b","265,622"],["Student rental properties","\u200b","1,977","\u200b","\u200b","531","\u200b","\u200b","17,633","\u200b","\u200b","20,141"],["Mixed use rental properties","\u200b","190","\u200b","\u200b","127","\u200b","\u200b","28,120","\u200b","\u200b","28,437"],["Storage units","\u200b","27,843","\u200b","\u200b","-","\u200b","\u200b","-","\u200b","\u200b","27,843"],["Real estate rental and leasing- other","\u200b","-","\u200b","\u200b","-","\u200b","\u200b","2,632","\u200b","\u200b","2,632"],["Retail trade","\u200b","5","\u200b","\u200b","3,071","\u200b","\u200b","-","\u200b","\u200b","3,076"],["Transportation and warehousing","\u200b","-","\u200b","\u200b","459","\u200b","\u200b","-","\u200b","\u200b","459"],["Wholesale trade","\u200b","-","\u200b","\u200b","21,090","\u200b","\u200b","-","\u200b","\u200b","21,090"],["Total","$","296,259","\u200b","$","181,012","\u200b","$","49,093","\u200b","$","526,364"]]
[[/GREPCENT_TABLE]]

​

Our loan portfolio does not consist of any loans secured by office buildings located in major metropolitan areas or that are over four stories or any retail properties rented to major big box retail tenants.  

​

43

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The following table sets forth the maturities, based upon contractual dates, for selected loan categories as of December 31, 2024:

Maturities of Loan Portfolio at December 31, 2024

Fixed Rate Loans

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","","Maturing Within One Year","","Maturing After One Year But Within Five Years","","Maturing After Five Years Within Fifteen Years","\u200b","Maturing After Fifteen Years","","Total"],["Commercial real estate","\u200b","$","83,475","\u200b","$","299,673","\u200b","$","31,067","\u200b","$","944","\u200b","$","415,159"],["Acquisition and development","\u200b","\u200b","37,568","\u200b","\u200b","12,962","\u200b","\u200b","46","\u200b","\u200b","\u2014","\u200b","\u200b","50,576"],["Commercial and industrial","\u200b","\u200b","17,056","\u200b","\u200b","128,262","\u200b","\u200b","29,433","\u200b","\u200b","\u2014","\u200b","\u200b","174,751"],["Residential mortgage","\u200b","\u200b","4,880","\u200b","\u200b","30,907","\u200b","\u200b","26,913","\u200b","\u200b","101,965","\u200b","\u200b","164,665"],["Consumer","\u200b","\u200b","1,127","\u200b","\u200b","30,999","\u200b","\u200b","9,872","\u200b","\u200b","1,576","\u200b","\u200b","43,574"],["Total Loans","\u200b","$","144,106","\u200b","$","502,803","\u200b","$","97,331","\u200b","$","104,485","\u200b","$","848,725"]]
[[/GREPCENT_TABLE]]

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Variable Rate Loans

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","\u200b","Maturing Within One Year","","Maturing After One Year But Within Five Years","","Maturing After Five Years Within Fifteen Years","\u200b","Maturing After Fifteen Years","","Total"],["Commercial real estate","\u200b","$","8,933","\u200b","$","34,035","\u200b","$","37,270","\u200b","$","30,967","\u200b","$","111,205"],["Acquisition and development","\u200b","\u200b","10,765","\u200b","\u200b","20,276","\u200b","\u200b","6,737","\u200b","\u200b","6,960","\u200b","\u200b","44,738"],["Commercial and industrial","\u200b","\u200b","66,194","\u200b","\u200b","32,653","\u200b","\u200b","13,149","\u200b","\u200b","787","\u200b","\u200b","112,783"],["Residential mortgage","\u200b","\u200b","1,696","\u200b","\u200b","1,603","\u200b","\u200b","22,014","\u200b","\u200b","328,837","\u200b","\u200b","354,150"],["Consumer","\u200b","\u200b","3,833","\u200b","\u200b","2","\u200b","\u200b","606","\u200b","\u200b","4,751","\u200b","\u200b","9,192"],["Total Loans","\u200b","$","91,421","\u200b","$","88,569","\u200b","$","79,776","\u200b","$","372,302","\u200b","$","632,068"]]
[[/GREPCENT_TABLE]]

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Management monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a required payment is past due. A loan is considered to be past due when a scheduled payment has not been received for 30 days past its contractual due date. For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection.  Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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The following sets forth the amounts of non-accrual, past-due and modified loans for the past two years:

Risk Elements of Loan Portfolio

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,"],["(in thousands)","","2024","","2023"],["Non-accrual loans:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial real estate","\u200b","$","656","\u200b","$","826"],["Acquisition and development","\u200b","\u200b","82","\u200b","\u200b","113"],["Commercial and industrial","\u200b","\u200b","1,838","\u200b","\u200b","\u2014"],["Residential mortgage","\u200b","\u200b","2,181","\u200b","\u200b","2,988"],["Consumer","\u200b","\u200b","174","\u200b","\u200b","29"],["Total non-accrual loans","\u200b","$","4,931","\u200b","$","3,956"],["Accruing Loans Past Due 90 days or more:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial real estate","\u200b","\u200b","317","\u200b","\u200b","\u2014"],["Residential mortgage","\u200b","$","573","\u200b","$","459"],["Consumer","\u200b","\u200b","28","\u200b","\u200b","84"],["Total accruing loans past due 90 days or more","\u200b","$","918","\u200b","$","543"],["Total non-accrual and past due 90 days or more","\u200b","$","5,849","\u200b","$","4,499"],["Other repossessed assets","\u200b","\u200b","2,802","\u200b","\u200b","55"],["Other real estate owned","\u200b","\u200b","3,062","\u200b","\u200b","4,493"],["Total Non-performing assets","\u200b","$","11,713","\u200b","$","9,047"],["Modified Loans:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Performing","\u200b","$","1,006","\u200b","$","\u2014"],["Total modified loans","\u200b","$","1,006","\u200b","$","\u2014"],["Individually evaluated loans without a valuation allowance","\u200b","$","4,432","\u200b","$","2,963"],["Total individually evaluated loans","\u200b","$","4,432","\u200b","$","2,963"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Non-accrual loans to total loans (as %)","\u200b","\u200b","0.33%","\u200b","\u200b","0.28%"],["Non-performing loans to total loans (as %)","\u200b","\u200b","0.39%","\u200b","\u200b","0.32%"],["Non-performing assets to total assets (as %)","\u200b","\u200b","0.59%","\u200b","\u200b","0.47%"],["Allowance for credit losses to non-accrual loans (as %)","\u200b","\u200b","368.49%","\u200b","\u200b","441.86%"],["Allowance for credit losses to non-performing assets (as %)","\u200b","\u200b","155.13%","\u200b","\u200b","193.21%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

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The following table sets forth the percent applicable by portfolio for non-accrual loans for the past two years:

Non-Accrual Loans as a % of Applicable Portfolio

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2024","","2023"],["Commercial real estate","\u200b","\u200b","0.1%","\u200b","\u200b","0.2%"],["Acquisition and development","\u200b","\u200b","0.1%","\u200b","\u200b","0.1%"],["Commercial and industrial","\u200b","\u200b","0.6%","\u200b","\u200b","0.0%"],["Residential mortgage","\u200b","\u200b","0.4%","\u200b","\u200b","0.6%"],["Consumer","\u200b","\u200b","0.3%","\u200b","\u200b","0.0%"]]
[[/GREPCENT_TABLE]]

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We would have recognized $0.8 million and $0.4 million in interest income for the years ended December 31, 2024 and 2023, respectively, had our non-accrual loans been current and performing in accordance with their terms.  During 2024 and 2023, we recognized, on a cash basis, $0.2 million and $0.3 million, respectively, of interest income on non-accrual loans that paid off.

Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the above.  Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $0.1 million or greater; otherwise, the modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the modified loan.  For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 17, Fair Value of Financial Instruments.  

From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty.  In some cases, these modifications may result in new loans.  Loan modifications to borrowers may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things.  The below table shows details of loans modified to borrowers experiencing financial difficulty at December 31, 2024:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","December 31, 2024"],["(in thousands)","Term Extension","Percentage of Total Loan Type","Weighted Average Term and Principal Payment Extension"],["December 31, 2024","\u200b","\u200b","\u200b","\u200b"],["Owner-occupied commercial real estate","$","884","0.38%","12 months"],["Commercial and industrial","\u200b","122","0.04%","60 months"],["Total","$","1,006","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

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All loans presented in the table above were performing in accordance with their modified terms at December 31, 2024

Allowance for Credit Losses

Effective January 1, 2023, we adopted the accounting guidance in FASB’s Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments- Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments, universally referred to as CECL.   In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology of CECL.  Refer to Note 5, Loans and Related Allowance for Credit

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Losses, for further discussion of these portfolio segments.  The adoption of ASU 2016-13 resulted in a Day 1 adjustment of $2.9 million to our ACL, including an increase of $2.0 million to the ACL for loans and $0.9 million to the ACL for unfunded commitments.  The Corporation recorded a net decrease to retained earnings of $2.2 million as of January 1, 2023 for the cumulative effect of adopting ASU 2016-13.

The ACL represents an amount which, in management’s judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience.  The ACL is measured and recorded upon the initial recognition of a financial asset.  The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased by a provision or decreased by a recovery for credit losses, which is recorded as a current period operating expense.

Determination of an appropriate ACL is inherently complex and requires the use of highly subjective estimates.  The reasonableness of the ACL is reviewed quarterly by management.  

Management believes that it uses relevant information available to make determination about the ACL and that it has established the existing allowance in accordance with GAAP.  However, the determination of the ACL requires significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed.  While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.

The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources.  Management evaluates the variability of market conditions by examining the peak and trough of economic cycles.  These peaks and troughs are used to stress the base case model to develop a range of potential outcomes.  Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio.   Management enhances its calculation with the use of Moody’s economic forecast data to provide additional support to substantiate its ACL.

The ACL was $18.2 million at December 31, 2024 compared to $17.5 million at December 31, 2023. The provision for credit losses was $2.9 million for the year ended December 31, 2024 compared to $1.7 million for the year ended December 31, 2023.  The provision expense recorded in 2024 was primarily related to the movement of approximately $12.1 million of commercial and industrial loans to non-accrual in the first quarter of 2024 and loan growth  offset in future quarters related to reduction in non-accruals, strong asset quality and improvements in qualitative factors.  Net charge-offs of $2.2 million were recorded for the year ended December 31, 2024 and $0.9 million for the year ended December 31, 2023.  The ratio of the ACL to loans outstanding was 1.23% at December 31, 2024 and 1.24% at December 31, 2023.  

​

The ratio of net charge-offs to average loans for the year ended December 31, 2024 was an annualized 0.16% compared to 0.07% for the year ended December 31, 2023. The increase in net charge-offs was related to our commercial and industrial portfolio charge-offs of equipment loan balances on one non-accrual relationship during 2024.  The consumer portfolio charge offs also increased during 2024 related to $0.4 million in charge-offs of overdrawn demand deposit balances during the first quarter and $0.1 million in charge offs of student loan accounts. Our special assets team continues to effectively collect on charged-off loans, resulting in ongoing overall low charge-off ratios.

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Accruing loans past due 30 days or more was 0.32% at December 31, 2024 compared to 0.24% at December 31, 2023. Non-accrual loans totaled $4.9 million at December 31, 2024 compared to $4.0 million at December 31, 2023. The increase in non-accrual balances at December 31, 2024 related to two commercial and industrial loan relationships totaling $12.1 million that were moved to non-accrual during the first quarter of 2024.  Subsequent to being moved to non-accrual, one of the borrowers liquidated collateral and reduced the balances by $5.5 million.  Additionally, a total of $2.8 million in collateral was moved to repossessed assets in the fourth quarter of 2024.  We recognized $1.3 million in net charge-offs

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and $3.0 million in principal reductions on the other commercial credit during 2024 related to the liquidation of collateral at depressed prices.  The Bank continues to liquidate collateral on both loan relationships.

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Management believes that the ACL at December 31, 2024 is adequate to provide for losses over the life of the loan portfolio. Amounts that will be recorded for the provision for credit losses in future periods will depend upon trends in the loan balances, including the composition of the loan portfolio, changes in loan quality and loss experience trends, potential recoveries on previously charged-off loans and changes in other qualitative factors. Management also applies interest rate risk, collateral value and debt service sensitivity analyses to the commercial real estate loan portfolio and obtains new appraisals on specific loans under defined parameters to assist in the determination of the periodic provision for credit losses.

The following table presents a summary of the activity in the ACL by major loan category for the past two years.

Analysis of Activity in the Allowance for Credit Losses

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Years Ended December 31,"],["(in thousands)","","2024","","2023"],["Balance, January 1","\u200b","$","17,480","\u200b","$","14,636"],["Impact of CECL Adoption","\u200b","\u200b","\u2014","\u200b","\u200b","2,066"],["Charge-offs:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial real estate","\u200b","\u200b","\u2014","\u200b","\u200b","(87)"],["Commercial and industrial","\u200b","\u200b","(1,610)","\u200b","\u200b","(423)"],["Residential mortgage","\u200b","\u200b","(45)","\u200b","\u200b","(55)"],["Consumer","\u200b","\u200b","(1,369)","\u200b","\u200b","(874)"],["Total charge-offs","\u200b","\u200b","(3,024)","\u200b","\u200b","(1,439)"],["Recoveries:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Commercial real estate","\u200b","\u200b","82","\u200b","\u200b","7"],["Acquisition and development","\u200b","\u200b","52","\u200b","\u200b","11"],["Commercial and industrial","\u200b","\u200b","212","\u200b","\u200b","186"],["Residential mortgage","\u200b","\u200b","75","\u200b","\u200b","73"],["Consumer","\u200b","\u200b","364","\u200b","\u200b","240"],["Total recoveries","\u200b","\u200b","785","\u200b","\u200b","517"],["Net credit losses","\u200b","\u200b","(2,239)","\u200b","\u200b","(922)"],["Provision for credit losses","\u200b","\u200b","2,929","\u200b","\u200b","1,700"],["Balance at end of period","\u200b","$","18,170","\u200b","$","17,480"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Allowance for credit losses to total loans (as %)","\u200b","\u200b","1.23%","\u200b","\u200b","1.24%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","2024","","2023"],["Commercial real estate","\u200b","\u200b","0.0%","\u200b","\u200b","0.0%"],["Acquisition and development","\u200b","\u200b","0.1%","\u200b","\u200b","0.0%"],["Commercial and industrial","\u200b","\u200b","(0.5%)","\u200b","\u200b","(0.1%)"],["Residential mortgage","\u200b","\u200b","0.0%","\u200b","\u200b","0.0%"],["Consumer","\u200b","\u200b","(1.9%)","\u200b","\u200b","(1.0%)"]]
[[/GREPCENT_TABLE]]

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The following presents management’s allocation of the ACL by major loan category in comparison to that loan category’s percentage of total loans. Changes in the allocation over time reflect changes in the composition of the loan portfolio risk profile and refinements to the methodology of determining the ACL. Specific allocations in any particular category may be reallocated in the future as needed to reflect current conditions. Accordingly, the entire ACL is considered available to absorb losses in any category.

Allocation of the Allowance for Credit Losses

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","For the Years Ended December 31,"],["(in thousands)","","2024","","% of Total ACL","","2023","","% of Total ACL"],["Commercial real estate","\u200b","$","5,272","\u200b","29%","\u200b","$","5,120","\u200b","29%"],["Acquisition and development","\u200b","\u200b","909","\u200b","5%","\u200b","\u200b","940","\u200b","5%"],["Commercial and industrial","\u200b","\u200b","4,205","\u200b","23%","\u200b","\u200b","3,717","\u200b","21%"],["Residential mortgage","\u200b","\u200b","7,010","\u200b","39%","\u200b","\u200b","6,774","\u200b","39%"],["Consumer","\u200b","\u200b","774","\u200b","4%","\u200b","\u200b","929","\u200b","6%"],["Total","\u200b","$","18,170","\u200b","100%","\u200b","$","17,480","\u200b","100%"]]
[[/GREPCENT_TABLE]]

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Investment Securities

The following table sets forth the composition of our investment securities portfolio by major category as of the indicated dates:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","At December 31,"],["\u200b","\u200b","2024","\u200b","2023"],["(in thousands)","","Amortized Cost","","Fair Value (FV)","\u200b","FV As % of Total","","Amortized Cost","","Fair Value (FV)","","FV As % of Total"],["Securities Available-for-Sale:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. government agencies","\u200b","$","7,000","\u200b","$","6,115","\u200b","6%","\u200b","$","7,000","\u200b","$","6,034","\u200b","6%"],["Residential mortgage-backed agencies","\u200b","\u200b","24,621","\u200b","\u200b","20,196","\u200b","21%","\u200b","\u200b","24,781","\u200b","\u200b","20,563","\u200b","21%"],["Commercial mortgage-backed agencies","\u200b","\u200b","37,205","\u200b","\u200b","28,634","\u200b","30%","\u200b","\u200b","36,258","\u200b","\u200b","28,417","\u200b","29%"],["Collateralized mortgage obligations","\u200b","\u200b","21,069","\u200b","\u200b","17,726","\u200b","19%","\u200b","\u200b","19,725","\u200b","\u200b","16,356","\u200b","17%"],["Obligations of states and political subdivisions","\u200b","\u200b","6,533","\u200b","\u200b","6,209","\u200b","7%","\u200b","\u200b","10,486","\u200b","\u200b","10,312","\u200b","11%"],["Corporate bonds","\u200b","\u200b","1,000","\u200b","\u200b","896","\u200b","1%","\u200b","\u200b","1,000","\u200b","\u200b","778","\u200b","1%"],["Collateralized debt obligations","\u200b","\u200b","18,686","\u200b","\u200b","14,718","\u200b","16%","\u200b","\u200b","18,671","\u200b","\u200b","14,709","\u200b","15%"],["Total available for sale","\u200b","$","116,114","\u200b","$","94,494","\u200b","100%","\u200b","$","117,921","\u200b","$","97,169","\u200b","100%"],["Securities Held to Maturity:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. treasuries","\u200b","$","\u2014","\u200b","$","\u2014","\u200b","0%","\u200b","$","37,462","\u200b","$","37,219","\u200b","20%"],["U.S. government agencies","\u200b","\u200b","68,301","\u200b","\u200b","57,109","\u200b","39%","\u200b","\u200b","68,014","\u200b","\u200b","57,029","\u200b","31%"],["Residential mortgage-backed agencies","\u200b","\u200b","32,171","\u200b","\u200b","28,611","\u200b","20%","\u200b","\u200b","29,588","\u200b","\u200b","26,717","\u200b","14%"],["Commercial mortgage-backed agencies","\u200b","\u200b","21,134","\u200b","\u200b","15,340","\u200b","11%","\u200b","\u200b","21,413","\u200b","\u200b","16,052","\u200b","9%"],["Collateralized mortgage obligations","\u200b","\u200b","49,439","\u200b","\u200b","39,715","\u200b","27%","\u200b","\u200b","53,261","\u200b","\u200b","43,288","\u200b","24%"],["Obligations of states and political subdivisions","\u200b","\u200b","4,511","\u200b","\u200b","3,985","\u200b","3%","\u200b","\u200b","4,604","\u200b","\u200b","4,110","\u200b","2%"],["Total held to maturity","\u200b","$","175,556","\u200b","$","144,760","\u200b","100%","\u200b","$","214,342","\u200b","$","184,415","\u200b","100%"]]
[[/GREPCENT_TABLE]]

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The total fair value of AFS securities was $94.5 million and the book value of HTM securities totaled $175.6 million at December 31, 2024, representing a decrease of $2.7 million and $38.8 million, respectively, since December 31, 2023.  In 2024, $37.5 million in U.S. Treasury bonds matured and the proceeds were used to repay the $40.0 million FHLB advance that matured in March.  Additionally, there were $15.0 million in maturities, calls, and principal paydowns in the portfolio.  New investment purchases in the amount of $11.2 million were made during 2024 to enhance the overall yield of the portfolio. Management intends to hold the portfolio relatively stable in 2025 by reinvesting cashflows back into the portfolio to enhance the overall yield of the portfolio.  The investment portfolio is primarily utilized for liquidity purposes, management of interest sensitivity and collateralization needs.

​

As discussed in Note 17 to the Consolidated Financial Statements presented elsewhere in this report, we measure fair market values based on the fair value hierarchy established in FASB’s Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 3 prices or valuation techniques require inputs that are both significant to the valuation assumptions and are not readily observable in the market (i.e., supported with little or no market activity). These Level 3 instruments are valued based on both observable and unobservable inputs derived from the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

Approximately $79.8 million of the AFS portfolio was valued using Level 2 pricing and had net unrealized losses of $17.7 million at December 31, 2024. The remaining $14.7 million of the AFS securities represents the collateralized debt obligation (“CDO”) portfolio, which was valued using significant unobservable inputs, or Level 3 pricing. The $4.0 million in net unrealized losses associated with the CDO portfolio relates to nine pooled trust preferred securities.  

The following table sets forth the contractual or estimated maturities of the components of our investment securities portfolio as of December 31, 2024 and the weighted average yields on a tax-equivalent basis.

Investment Security Maturities, Yields, and Fair Values at December 31, 2024

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","","1 Year To 5 Years","","5 Years To 10 Years","","Over 10 Years","","Total Fair Value"],["Securities Available-for-Sale:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. government agencies","\u200b","$","4,802","\u200b","$","\u2014","\u200b","$","1,313","\u200b","$","6,115"],["Residential mortgage-backed agencies","\u200b","\u200b","\u2014","\u200b","\u200b","18,222","\u200b","\u200b","1,974","\u200b","\u200b","20,196"],["Commercial mortgage-backed agencies","\u200b","\u200b","22,868","\u200b","\u200b","5,766","\u200b","\u200b","\u2014","\u200b","\u200b","28,634"],["Collateralized mortgage obligations","\u200b","\u200b","1,182","\u200b","\u200b","13,096","\u200b","\u200b","3,448","\u200b","\u200b","17,726"],["Obligations of states and political subdivisions","\u200b","\u200b","250","\u200b","\u200b","2,320","\u200b","\u200b","3,639","\u200b","\u200b","6,209"],["Corporate bonds","\u200b","\u200b","\u2014","\u200b","\u200b","896","\u200b","\u200b","\u2014","\u200b","\u200b","896"],["Collateralized debt obligations","\u200b","\u200b","\u2014","\u200b","\u200b","\u2014","\u200b","\u200b","14,718","\u200b","\u200b","14,718"],["Total available for sale","\u200b","$","29,102","\u200b","$","40,300","\u200b","$","25,092","\u200b","$","94,494"],["Percentage of total","\u200b","\u200b","30.80%","\u200b","\u200b","42.65%","\u200b","\u200b","26.55%","\u200b","\u200b","100.00%"],["Weighted average yield","\u200b","\u200b","2.53%","\u200b","\u200b","2.22%","\u200b","\u200b","11.06%","\u200b","\u200b","4.66%"],["Held to Maturity:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["U.S. government agencies","\u200b","$","11,990","\u200b","$","32,556","\u200b","$","12,563","\u200b","$","57,109"],["Residential mortgage-backed agencies","\u200b","\u200b","1,550","\u200b","\u200b","5,968","\u200b","\u200b","21,093","\u200b","\u200b","28,611"],["Commercial mortgage-backed agencies","\u200b","\u200b","6,985","\u200b","\u200b","8,355","\u200b","\u200b","\u2014","\u200b","\u200b","15,340"],["Collateralized mortgage obligations","\u200b","\u200b","1,882","\u200b","\u200b","17,487","\u200b","\u200b","20,346","\u200b","\u200b","39,715"],["Obligations of states and political subdivisions","\u200b","\u200b","\u2014","\u200b","\u200b","1,806","\u200b","\u200b","2,179","\u200b","\u200b","3,985"],["Total held to maturity","\u200b","$","22,407","\u200b","$","66,172","\u200b","$","56,181","\u200b","$","144,760"],["Percentage of total","\u200b","\u200b","15.48%","\u200b","\u200b","45.71%","\u200b","\u200b","38.81%","\u200b","\u200b","100.00%"],["Weighted average yield","\u200b","\u200b","2.35%","\u200b","\u200b","2.26%","\u200b","\u200b","3.22%","\u200b","\u200b","2.65%"]]
[[/GREPCENT_TABLE]]

​

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The weighted average yield was calculated using historical cost balances and does not give effect to changes in fair value.

Deposits

The following table sets forth the deposit balances by major category for December 31, 2024 and 2023:

Deposit Balances

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2024","2023"],["(in thousands)","","Actual Balance","","Percent","","Actual Balance","","Percent"],["Non-interest-bearing demand deposits","\u200b","$","426,737","\u200b","\u200b","27%","\u200b","$","427,670","\u200b","\u200b","28%"],["Interest-bearing deposits:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Demand","\u200b","\u200b","386,803","\u200b","\u200b","25%","\u200b","\u200b","350,860","\u200b","\u200b","22%"],["Money market- retail","\u200b","\u200b","447,149","\u200b","\u200b","28%","\u200b","\u200b","385,649","\u200b","\u200b","25%"],["Money market- brokered","\u200b","\u200b","1","\u200b","\u200b","0%","\u200b","\u200b","\u2014","\u200b","\u200b","0%"],["Savings deposits","\u200b","\u200b","170,972","\u200b","\u200b","11%","\u200b","\u200b","191,265","\u200b","\u200b","12%"],["Time deposits - retail","\u200b","\u200b","143,167","\u200b","\u200b","9%","\u200b","\u200b","165,533","\u200b","\u200b","11%"],["Time deposits - brokered","\u200b","\u200b","\u2014","\u200b","\u200b","0%","\u200b","\u200b","30,000","\u200b","\u200b","2%"],["Total Deposits","\u200b","$","1,574,829","\u200b","\u200b","100%","\u200b","$","1,550,977","\u200b","\u200b","100%"]]
[[/GREPCENT_TABLE]]

​

Total deposits at December 31, 2024 increased by $23.9 million when compared to December 31, 2023.  Interest-bearing demand deposits increased by $35.9 million in 2024, which included the shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts due to management’s strategy to release pledging of investment securities for municipalities to provide additional liquidity.  Money market accounts increased by $61.5 million due primarily to the expansion of current and new relationships throughout the year and a shift from certificates of deposit.  Traditional savings accounts decreased by $20.3 million and time deposits decreased by $52.4 million.  The decrease in time deposits was due to a decrease of $22.4 million in retail CDs related to maturities of a nine-month special CD promotion in 2023 and the maturity and repayment of $30.0 million in brokered CDs during the year.  The Bank has worked closely with customers as these retail CDs mature to transition them to other deposit and wealth management products offered by the Bank.

​

The following table summarizes the percentage of deposits that are insured by deposit insurance or otherwise fully collateralized by securities compared to uninsured deposits as of December 31, 2024 and December 31, 2023.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2024","\u200b","2023"],["(in thousands)","\u200b","\u200b","Balance","\u200b","Percent","\u200b","\u200b","Balance","\u200b","Percent"],["Insured deposits","\u200b","$","1,192,182","\u200b","76%","\u200b","$","1,212,934","\u200b","78%"],["Uninsured but collateralized deposits","\u200b","\u200b","77,369","\u200b","5%","\u200b","\u200b","116,723","\u200b","8%"],["Uninsured and uncollateralized deposits","\u200b","\u200b","305,278","\u200b","19%","\u200b","\u200b","221,320","\u200b","14%"],["\u200b","\u200b","$","1,574,829","\u200b","100%","\u200b","$","1,550,977","\u200b","100%"]]
[[/GREPCENT_TABLE]]

​

The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of December 31, 2024 and December 31, 2023.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","2024","\u200b","2023"],["(in thousands)","\u200b","\u200b","Balance","\u200b","Percent","\u200b","\u200b","Balance","\u200b","Percent"],["Retail deposits","\u200b","$","798,664","\u200b","51%","\u200b","$","820,954","\u200b","53%"],["Business deposits","\u200b","\u200b","776,165","\u200b","49%","\u200b","\u200b","730,023","\u200b","47%"],["\u200b","\u200b","$","1,574,829","\u200b","100%","\u200b","$","1,550,977","\u200b","100%"]]
[[/GREPCENT_TABLE]]

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Borrowed Funds

The following shows the composition of our borrowings at December 31:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","","2024","","2023"],["Overnight borrowings at Federal Reserve Discount Window","\u200b","$","50,000","\u200b","$","\u2014"],["Securities sold under agreements to repurchase","\u200b","$","15,409","\u200b","$","45,418"],["Total short-term borrowings","\u200b","$","65,409","\u200b","$","45,418"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Long-term FHLB advances","\u200b","$","90,000","\u200b","$","80,000"],["Junior subordinated debentures","\u200b","$","30,929","\u200b","$","30,929"],["Total long-term borrowings","\u200b","$","120,929","\u200b","$","110,929"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Total borrowings","\u200b","$","186,338","\u200b","$","156,347"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Average balance (from Table 1)","\u200b","$","150,657","\u200b","$","142,239"]]
[[/GREPCENT_TABLE]]

​

The following is a summary of short-term borrowings at December 31 with original maturities of less than one year:

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","","2024","","2023"],["Overnight borrowings, weighted average interest rate of 4.50% at December 31, 2024","\u200b","$","50,000","\u200b","$","\u2014"],["Securities sold under agreements to repurchase:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Outstanding at end of year","\u200b","$","15,409","\u200b","$","45,418"],["Weighted average interest rate at year end","\u200b","\u200b","0.24%","\u200b","\u200b","0.27%"],["Maximum amount outstanding as of any month end","\u200b","$","44,415","\u200b","$","59,777"],["Average amount outstanding","\u200b","\u200b","29,085","\u200b","\u200b","50,498"],["Approximate weighted average rate during the year","\u200b","\u200b","0.26%","\u200b","\u200b","0.24%"]]
[[/GREPCENT_TABLE]]

​

Short-term borrowings increased by $20.0 million when compared to December 31, 2023 due to an increase of $50.0 million in overnight borrowings from the Federal Reserve, offset by a shift of approximately $22.0 million in overnight investment sweep balances into FDIC insured accounts due to management’s strategy to release pledging of investment securities for municipalities to provide additional liquidity.  The overnight borrowings were replaced with brokered certificates of deposit in January 2025.  Long-term borrowings increased by $10.0 million when compared to December 31, 2023.  Maturities of FHLB advances of $40.0 million in March and $40.0 million in September were fully repaid.  During the third quarter and after the Federal Reserve’s announcement that rates would be reduced by 50 basis points, management made the strategic decision to lock in borrowing costs by placing $90.0 million in FHLB advances with maturities of 12- and 18-months and a weighted average rate of 3.89%.  Of this amount, $41.1 million was utilized to prepay the principal and accrued interest of the BTFP borrowing at a rate of 4.87% that was scheduled to mature in January of 2025 and approximately $30.0 million was utilized to repay overnight borrowings related to the repayment of the September $40.0 million maturity at a rate of 4.53%.   The remainder was used to fund loan growth in the fourth quarter of 2024.

​

Management will continue to closely monitor interest rates within the context of its overall asset-liability management process. See the discussion under the heading “Interest Rate Sensitivity” in this Item 7 for further information on this topic.

At December 31, 2024, we had additional borrowing capacity with the FHLB totaling $213.6 million, an additional $140.0 million of unused lines of credit with correspondent financial institutions, and $36.6 million of an unused secured line of credit with the Federal Reserve Discount Window.  See Note 9 to the Consolidated Financial Statements

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presented elsewhere in this annual report for further details about our borrowings and additional borrowing capacity, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

In the normal course of business, to meet the financing needs of its customers, the Bank is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit, lines of credit, and standby letters of credit. Our exposure to credit loss in the event of nonperformance by the other party to these financial instruments is represented by the contractual amount of the instruments. The credit risks inherent in loan commitments and letters of credit are essentially the same as those involved in extending loans to customers, and these arrangements are subject to our normal credit policies. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. We generally require collateral or other security to support the financial instruments with credit risk. The amount of collateral or other security is determined based on management’s credit evaluation of the counterparty. We evaluate each customer’s creditworthiness on a case-by-case basis.

Loan commitments and letters of credit totaled $251.3 million and $16.5 million, respectively, at December 31, 2024. Management does not believe that any of the foregoing arrangements have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. We are not a party to any other off-balance sheet arrangements. See Note 16 to the Consolidated Financial Statements presented elsewhere in this annual report for additional information on these arrangements.

Capital Resources

We require capital to fund loans, satisfy our obligations under the Bank’s letters of credit, meet the deposit withdraw demands of the Bank’s customers, and satisfy our other monetary obligations. To the extent that deposits are not adequate to fund our capital requirements, we can rely on the funding sources identified below under the heading “Liquidity Management”.  At December 31, 2024, the Bank had $140.0 million available through unsecured lines of credit with correspondent banks, $36.6 million net available through a secured line of credit with the Federal Reserve Discount Window and approximately $213.6 million net available through the FHLB.  Management is not aware of any demands, commitments, events or uncertainties that are likely to materially affect our ability to meet our future capital requirements.

In addition to operational requirements, the Bank and the Corporation are subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators. These regulations are used to evaluate capital adequacy and require an analysis of an institution’s asset risk profile and off-balance sheet exposures, such as unused loan commitments and stand-by letters of credit. Detailed information about these capital regulations and their requirements is set forth in the “Supervision and Regulation” section of Item 1 of Part I of this annual report under the heading “Capital Requirements”.

At December 31, 2024, the Corporation’s total risk-based capital ratio was 15.92% and the Bank’s total risk-based capital ratio was 14.59%, both of which were well above the regulatory minimum of 8%. The total risk-based capital ratios of the Corporation and the Bank at December 31, 2023 were 15.64% and 14.05%, respectively.  

At December 31, 2024, the most recent notification from the regulators categorizes the Bank as “well capitalized” under the regulatory framework for prompt corrective action. See Note 3 to the Consolidated Financial Statements presented elsewhere in this annual report for additional information regarding regulatory capital ratios.

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Liquidity Management

Liquidity is a financial institution’s capability to meet customer demands for deposit withdrawals while funding all credit-worthy loans. The factors that determine the institution’s liquidity are:

[[GREPCENT_TABLE]]
[["","\u25cf","Reliability and stability of core deposits;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Cash flow structure and pledging status of investments; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Potential for unexpected loan demand."]]
[[/GREPCENT_TABLE]]

We actively manage our liquidity position through meetings of a sub-committee of executive management, which looks forward 12 months at 30-day intervals. The measurement is based upon the projection of funds sold or purchased position, along with ratios and trends developed to measure dependence on purchased funds and core growth. Monthly reviews by management and quarterly reviews by the Asset and Liability Committee under prescribed policies and procedures are designed to ensure that we will maintain adequate levels of available funds.

It is our policy to manage our affairs so that liquidity needs are fully satisfied through normal Bank operations. That is, the Bank will manage its liquidity to minimize the need to make unplanned sales of assets or to borrow funds under emergency conditions. The Bank will use funding sources where the interest cost is relatively insensitive to market changes in the short run (periods of one year or less) to satisfy operating cash needs. The remaining normal funding will come from interest-sensitive liabilities, either deposits or borrowed funds. When the marginal cost of needed wholesale funding is lower than the cost of raising this funding in the retail markets, the Corporation may supplement retail funding with external funding sources such as:

[[GREPCENT_TABLE]]
[["","\u25cf","Unsecured Fed Funds lines of credit with upstream correspondent banks (M&T Bank, Atlantic Community Bankers Bank, Community Bankers Bank, PNC Financial Services, Pacific Coast Banker\u2019s Bank and Zions Bancorp)."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Secured advances with the FHLB of Atlanta, which are collateralized by eligible one-to-four family residential mortgage loans, home equity lines of credit, commercial real estate loans. Cash and various securities may also be pledged as collateral."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Secured line of credit with the Federal Reserve Discount Window for use in borrowing funds up to 90 days, using eligible investment securities as collateral."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Brokered deposits, including CDs and money market funds, provide a method to generate deposits quickly. These deposits are strictly rate driven but often provide the most cost-effective means of funding growth."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","One Way Buy CDARS/ICS funding \u2013 a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly."]]
[[/GREPCENT_TABLE]]

​

The following table presents sources of liquidity available to the Corporation as of December 31, 2024.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","\u200b","\u200b","Total Availability","\u200b","\u200b","Amount Used","\u200b","\u200b","Net Availability"],["Internal Sources","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Excess cash","\u200b","$","62,251","\u200b","$","-","\u200b","$","62,251"],["Unpledged securities","\u200b","\u200b","39,865","\u200b","\u200b","-","\u200b","\u200b","39,865"],["External Sources","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Federal Reserve (discount window)","\u200b","\u200b","86,624","\u200b","\u200b","50,000","\u200b","\u200b","36,624"],["Correspondent unsecured lines of credit","\u200b","\u200b","140,000","\u200b","\u200b","-","\u200b","\u200b","140,000"],["FHLB","\u200b","\u200b","309,787","\u200b","\u200b","96,214","\u200b","\u200b","213,573"],["\u200b","\u200b","$","638,527","\u200b","$","146,214","\u200b","$","492,313"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b"]]
[[/GREPCENT_TABLE]]

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We have adequate liquidity available to respond to current and anticipated liquidity demands and are not aware of any trends or demands, commitments, events or uncertainties that are likely to materially affect our ability to maintain liquidity at satisfactory levels.

Market Risk and Interest Sensitivity

Our primary market risk is interest rate fluctuation. Interest rate risk results primarily from the traditional banking activities that we engage in, such as gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences affect the difference between the interest earned on our assets and the interest paid on our liabilities. Interest rate sensitivity refers to the degree that earnings will be impacted by changes in the prevailing level of interest rates. Interest rate risk arises from mismatches in the repricing or maturity characteristics between interest-bearing assets and liabilities. Management seeks to minimize fluctuating net interest margins, and to enhance consistent growth of net interest income through periods of changing interest rates. Management uses interest sensitivity gap analysis and simulation models to measure and manage these risks. The interest rate sensitivity gap analysis assigns each interest-earning asset and interest-bearing liability to a time frame reflecting its next repricing or maturity date. The differences between total interest-sensitive assets and liabilities at each time interval represent the interest sensitivity gap for that interval. A positive gap generally indicates that rising interest rates during a given interval will increase net interest income, as more assets than liabilities will reprice. A negative gap position would benefit us during a period of declining interest rates.

At December 31, 2024, we were asset sensitive.

Our interest rate risk management goals are:

[[GREPCENT_TABLE]]
[["","\u25cf","Ensure that the Board of Directors and senior management will provide effective oversight and ensure that risks are adequately identified, measured, monitored and controlled;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Enable dynamic measurement and management of interest rate risk;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Select strategies that optimize our ability to meet our long-range financial goals while maintaining interest rate risk within policy limits established by the Board of Directors;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Use both income and market value oriented techniques to select strategies that optimize the relationship between risk and return; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Establish interest rate risk exposure limits for fluctuation in net interest income (\u201cNII\u201d), net income and economic value of equity."]]
[[/GREPCENT_TABLE]]

In order to manage interest sensitivity risk, management formulates guidelines regarding asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These guidelines are based on management’s outlook regarding future interest rate movements, the state of the regional and national economy, and other financial and business risk factors. Management uses computer simulations to measure the effect on net interest income of various interest rate scenarios. Key assumptions used in the computer simulations include cash flows and maturities of interest rate sensitive assets and liabilities, changes in asset volumes and pricing, and management’s capital plans. This modeling reflects interest rate changes and the related impact on net interest income over specified periods.

We evaluate the effect of a change in interest rates of -400 basis points to +400 basis points on both NII and Net Portfolio Value (“NPV”) / Economic Value of Equity (“EVE”). We concentrate on NII rather than net income as long as NII remains the significant contributor to net income.

NII modeling allows management to view how changes in interest rates will affect the spread between the yield earned on assets and the cost of deposits and borrowed funds. Unlike traditional Gap modeling, NII modeling takes into account the different degree to which installments in the same repricing period will adjust to a change in interest rates. It also allows the use of different assumptions in a falling versus a rising rate environment. The period considered by the NII modeling is the next eight quarters.

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NPV / EVE modeling focuses on the change in the market value of equity. NPV / EVE is defined as the market value of assets less the market value of liabilities plus/minus the market value of any off-balance sheet positions. By effectively looking at the present value of all future cash flows on or off the balance sheet, NPV / EVE modeling takes a longer-term view of interest rate risk. This complements the shorter-term view of the NII modeling.

Measures of NII at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.

Based on the simulation analysis performed at December 31, 2024 and 2023, management estimated the following changes in net interest income, assuming the indicated rate changes:

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["(in thousands)","","2024","","2023"],["+400 basis points","\u200b","$","5,722","\u200b","$","4,464"],["+300 basis points","\u200b","$","5,300","\u200b","$","3,353"],["+200 basis points","\u200b","$","4,253","\u200b","$","2,255"],["+100 basis points","\u200b","$","2,391","\u200b","$","1,155"],["-100 basis points","\u200b","$","(2,851)","\u200b","$","(1,280)"],["-200 basis points","\u200b","$","(5,424)","\u200b","$","(3,102)"],["-300 basis points","\u200b","$","(8,080)","\u200b","$","(5,249)"],["-400 basis points","\u200b","$","(11,151)","\u200b","$","(8,086)"]]
[[/GREPCENT_TABLE]]

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This estimate is based on assumptions that may be affected by unforeseeable changes in the general interest rate environment and any number of unforeseeable factors. Rates on different assets and liabilities within a single maturity category adjust to changes in interest rates to varying degrees and over varying periods of time. The relationships between lending rates and rates paid on purchased funds are not constant over time. Management can respond to current or anticipated market conditions by lengthening or shortening the Bank’s sensitivity through loan repricings or changing its funding mix. The rate of growth in interest-free sources of funds will influence the level of interest-sensitive funding sources. In addition, the absolute level of interest rates will affect the volume of earning assets and funding sources. As a result of these limitations, the interest-sensitive gap is only one factor to be considered in estimating the net interest margin.

Impact of Inflation – Our assets and liabilities are primarily monetary in nature, and as such, future changes in prices do not affect the obligations to pay or receive fixed and determinable amounts of money. During inflationary periods, monetary assets lose value in terms of purchasing power and monetary liabilities have corresponding purchasing power gains. The concept of purchasing power is not an adequate indicator of the impact of inflation on financial institutions because it does not incorporate changes in our earnings.

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