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What changed in NORWOOD FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NORWOOD FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+170 added−159 removedSource: 10-K (2024-03-14) vs 10-K (2023-03-17)

Top changes in NORWOOD FINANCIAL CORP's 2023 10-K

170 paragraphs added · 159 removed · 120 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe Basel III Capital Rules apply to all depository institutions as well as to all top-tier bank and savings and loan holding companies that are not subject to the Federal Reserve Small Bank Holding Company Policy Statement. 5 Under the Basel III Capital Rules, banks are required to meet four minimum capital standards: (1) a “Tier 1” or “core” capital leverage ratio equal to at least 4% of total adjusted assets; (2) a common equity Tier 1 capital ratio equal to 4.5% of risk-weighted assets; (3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets; and (4) a total capital ratio equal to 8% of total risk-weighted assets.
Biggest changeUnder the Basel III Capital Rules, banks are required to meet four minimum capital standards: (1) a “Tier 1” or “core” capital leverage ratio equal to at least 4% of total adjusted assets; (2) a common equity Tier 1 capital ratio equal to 4.5% of risk-weighted assets; (3) a Tier 1 risk-based ratio equal to 6% of risk-weighted assets; and (4) a total capital ratio equal to 8% of total risk-weighted assets.
The Bank is an independent community bank with fourteen offices in Northeastern Pennsylvania and fifteen offices in Delaware, Sullivan, Ontario, Otsego and Yates Counties, New York.
The Bank is an independent community bank with fifteen offices in Northeastern Pennsylvania and fourteen offices in Delaware, Sullivan, Ontario, Otsego and Yates Counties, New York.
At the effective time of the Merger, each outstanding share of the common stock of Delaware was converted, at the election of the holder but subject to the limitations and allocation and proration provisions set forth in the Delaware Agreement, into either $16.68 in cash or 0.6221 of a share of the Company’s 2 common stock, par value $0.10 per share (the “Common Stock”).
At the effective time of the Merger, each outstanding share of the common stock of Delaware was converted, at the election of the holder but subject to the limitations and allocation and proration provisions set forth in the Delaware Agreement, into either $16.68 in cash or 0.6221 of a share of the Company’s common stock, par value $0.10 per share (the “Common Stock”).
As long as their bank subsidiaries are well capitalized, such bank holding companies need only maintain a pro forma debt to equity ratio of less than 1.0 in order to pay dividends and repurchase stock and to be eligible for expedited treatment on applications. 4 Regulation of the Bank General.
As long as their bank subsidiaries are well capitalized, such bank holding companies need only maintain a pro forma debt to equity ratio of less than 1.0 in order to pay dividends and repurchase stock and to be eligible for expedited treatment on applications. Regulation of the Bank General.
In the aggregate, the merger consideration paid to Delaware shareholders consisted of approximately $3,860,000 in cash and 431,605 shares of the Common Stock. North Penn Bancorp, Inc. On May 31, 2011, the Company completed the acquisition of North Penn Bancorp, Inc. (“North Penn”) and its wholly owned subsidiary, North Penn Bank.
In the aggregate, the merger consideration paid to Delaware shareholders consisted of approximately $3,860,000 in cash and 431,605 shares of the Common Stock. 2 North Penn Bancorp, Inc. On May 31, 2011, the Company completed the acquisition of North Penn Bancorp, Inc. (“North Penn”) and its wholly owned subsidiary, North Penn Bank.
Further, loans and other extensions of credit generally are required to be secured by eligible collateral in specified amounts. Transactions with non-affiliates may be treated 6 as transactions with an affiliate to the extent that proceeds from the transaction are used to benefit the affiliate.
Further, loans and other extensions of credit generally are required to be secured by eligible collateral in specified amounts. Transactions with non-affiliates may be treated as transactions with an affiliate to the extent that proceeds from the transaction are used to benefit the affiliate.
The federal and state laws and regulations applicable to banks regulate, among other things, the scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans.
The federal and state laws and regulations applicable to banks regulate, among other things, the 4 scope of their business, their investments, the reserves required to be kept against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans.
An institution’s risk-based capital requirements are measured against risk-weighted assets, which equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight.
An institution’s risk-based capital requirements are measured against risk-weighted assets, which 5 equal the sum of each on-balance-sheet asset and the credit-equivalent amount of each off-balance-sheet item after being multiplied by an assigned risk weight.
In addition, the Department has the supervisory discretion to require higher leverage ratio for any institutions based on the institution’s substandard performance in any of a number of areas. The Bank was in compliance with both the FDIC and the Pennsylvania capital requirements in effect as of December 31, 2022. Prompt Corrective Regulatory Action .
In addition, the Department has the supervisory discretion to require higher leverage ratio for any institutions based on the institution’s substandard performance in any of a number of areas. The Bank was in compliance with both the FDIC and the Pennsylvania capital requirements in effect as of December 31, 2023. Prompt Corrective Regulatory Action .
At December 31, 2022, the Bank was in compliance with this requirement. Restrictions on Dividends . The Pennsylvania Banking Code states, in part, that dividends may be declared and paid only out of accumulated net earnings and may not be declared or paid unless surplus (retained earnings) is at least equal to contributed capital.
At December 31, 2023, the Bank was in compliance with this requirement. Restrictions on Dividends . The Pennsylvania Banking Code states, in part, that dividends may be declared and paid only out of accumulated net earnings and may not be declared or paid unless surplus (retained earnings) is at least equal to contributed capital.
At December 31, 2022, the Bank qualified as “well capitalized” under the prompt corrective action rules. Affiliate Transaction Restrictions. Federal laws strictly limit the ability of banks to engage in transactions with their affiliates, including their bank holding companies.
At December 31, 2023, the Bank qualified as “well capitalized” under the prompt corrective action rules. Affiliate Transaction Restrictions. Federal laws strictly limit the ability of banks to engage in transactions with their affiliates, including their bank holding companies.
The decrease in the 2022 level was due to the impact of rising interest rates and the related decrease in accumulated other comprehensive income. Wayne Bank is a Pennsylvania chartered bank and trust company headquartered in Honesdale, Pennsylvania.
The decrease in the 2023 level was due to the impact of rising interest rates and the related decrease in accumulated other comprehensive income (loss). Wayne Bank is a Pennsylvania chartered bank and trust company headquartered in Honesdale, Pennsylvania.
Loan competition varies depending upon market conditions and comes from other insured financial institutions such as commercial banks, thrift institutions, credit unions, multi-state regional banks, and mortgage bankers. Personnel As of December 31, 2022, the Bank had 274 full - time and two part - time employees. None of the Bank’s employees are represented by a collective bargaining group.
Loan competition varies depending upon market conditions and comes from other insured financial institutions such as commercial banks, thrift institutions, credit unions, multi-state regional banks, and mortgage bankers. Personnel As of December 31, 2023, the Bank had 261 full - time and four part - time employees. None of the Bank’s employees are represented by a collective bargaining group.
As of December 31, 2022, the Bank’s loans-to-one-borrower limitation was $31.2 million and the Bank was in compliance with such limitation. Federal Home Loan Bank System. The Bank is a member of the FHLB of Pittsburgh, which is one of 11 regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region.
As of December 31, 2023, the Bank’s loans-to-one-borrower limitation was $32.5 million and the Bank was in compliance with such limitation. 6 Federal Home Loan Bank System. The Bank is a member of the FHLB of Pittsburgh, which is one of 11 regional FHLBs. Each FHLB serves as a reserve or central bank for its members within its assigned region.
LPL is a registered broker/dealer and a member of FINRA and the SIPC. NIC generated gross revenues for the Company of $119,000 and $127,000 in 2022 and 2021, respectively, which is included in Other Income.
LPL is a registered broker/dealer and a member of FINRA and the SIPC. NIC generated gross revenues for the Company of $296,000 and $119,000 in 2023 and 2022, respectively, which is included in Other Income.
Trust Activities The Bank operates a Wealth Management/Trust Department which provides estate planning, investment management and financial planning to customers for which it is generally compensated based on a percentage of assets under management. As of December 31, 2022, the Bank had $184.9 million of assets under management compared to $196.0 million as of December 31, 2021.
Trust Activities The Bank operates a Wealth Management/Trust Department which provides estate planning, investment management and financial planning to customers for which it is generally compensated based on a percentage of assets under management. As of December 31, 2023, the Bank had $192.4 million of assets under management compared to $184.9 million as of December 31, 2022.
As of December 31, 2022 and 2021, the outstanding balance of foreclosed properties on which WTRO held title totaled $346,000 and $1,742,000, respectively. Regulation Set forth below is a brief description of certain laws which relate to the regulation of the Company and the Bank.
As of December 31, 2023 and 2022, the outstanding balance of foreclosed properties on which WTRO held title totaled $0 and $346,000, respectively. 3 Regulation Set forth below is a brief description of certain laws which relate to the regulation of the Company and the Bank.
The decrease reflects reduced market valuations during 2022, such as stock market performance which can affect the value of a customer’s investment portfolio. Subsidiary Activities The Bank, a Pennsylvania chartered bank, is the only wholly owned subsidiary of the Company. Norwood Investment Corp.
The increase reflects growth and improved market valuations during 2023, such as stock market performance which can affect the value of a customer’s investment portfolio. Subsidiary Activities The Bank, a Pennsylvania chartered bank, is the only wholly owned subsidiary of the Company. Norwood Investment Corp.
In October 2022, the SEC adopted a final rule directing national securities exchanges, including Nasdaq, to establish listing standards requiring listed companies to adopt policies providing for the recovery or “clawback” of excess incentive-based compensation earned by current or former executive officers during the three fiscal years preceding the date the listed company determines an accounting restatement is required.
In October 2023, the Nasdaq, adopted listing standards requiring listed companies to adopt policies providing for the recovery or “clawback” of excess incentive-based compensation earned by current or former executive officers during the three fiscal years preceding the date the listed company determines an accounting restatement is required.
As of December 31, 2022, the Company had total consolidated assets of $2.047 billion, consolidated deposits of $1.728 billion, and consolidated stockholders’ equity of $167.1 million. The Company’s ratio of average equity to average assets was 8.87%, 10.04%, and 10.70% for fiscal years 2022, 2021 and 2020, respectively.
As of December 31, 2023, the Company had total consolidated assets of $2.201 billion, consolidated deposits of $1.795 billion, and consolidated stockholders’ equity of $181.1 million. The Company’s ratio of average equity to average assets was 8.14%, 8.87%, and 10.04% for fiscal years 2023, 2022 and 2021, respectively.
WCB Realty Corp., a Pennsylvania corporation, is a wholly owned real estate subsidiary of the Bank whose principal asset is the administrative offices of the Company, which also includes the Main Office of the Bank. 3 WTRO Properties Inc., a Pennsylvania corporation, is a wholly owned real estate subsidiary of the Bank established to hold title to certain real estate upon which the Bank has foreclosed.
WCB Realty Corp., a Pennsylvania corporation, is a wholly owned real estate subsidiary of the Bank whose principal asset is the administrative offices of the Company, which also includes the Main Office of the Bank. WTRO Properties Inc.
Based on data compiled by the FDIC as of June 30, 2022 (the latest date for which such data is available), the Bank had the third largest share of FDIC-insured deposits in Wayne County with approximately 22.63%, the second largest share in Pike County with 17.83%, seventh largest share in Monroe County with 3.55%, the eleventh largest share in Lackawanna County with 1.04% and the seventeenth largest share in Luzerne County with 0.28%.
Based on data compiled by the FDIC as of June 30, 2023 (the latest date for which such data is available), the Bank had the third largest share of FDIC-insured deposits in Wayne County with approximately 22.64%, the second largest share in Pike County with 18.88%, seventh largest share in Monroe County with 3.51%, the eleventh largest share in Lackawanna County with 1.13% and the seventeenth largest share in Luzerne County with 0.34%.
At June 30, 2022, the Bank had the largest share of FDIC-insured deposits in Delaware County, New York, with 30.01% and the fifth largest share in Sullivan County, New York, with 7.95%. The Bank’s market share in Ontario, Otsego and Yates Counties were 3.82%, 16.32% and 12.60%, respectively.
At June 30, 2023, the Bank had the largest share of FDIC-insured deposits in Delaware County, New York, with 30.55% and the fifth largest share in Sullivan County, New York, with 8.68%. The Bank’s market share in Ontario, Otsego and Yates Counties were 3.50%, 17.21% and 9.81%, respectively.
In addition, provisions of the USA PATRIOT Act require the federal bank regulatory agencies to consider the effectiveness of a bank’s anti-money laundering activities when reviewing mergers and acquisitions. 7 Incentive Compensation . The FDIC and the Federal Reserve review, as part of their regular, risk-focused examinations, the incentive compensation arrangements of banking organizations.
In addition, provisions of the USA PATRIOT Act require the federal bank regulatory agencies to consider the effectiveness of a bank’s anti-money laundering activities when reviewing mergers and acquisitions. Privacy Regulations and Cybersecurity.
These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. Deficiencies are incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
Deficiencies are incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
The SEC final rule will require us to adopt a clawback policy within 60 days after the Nasdaq listing standard becomes effective. Item 1A. Risk Factors Not applicable. Item 1B. Unresolved Staff Comments None.
The Company adopted a clawback policy compliant with the new Nasdaq listing standard, effective October 2, 2023. Item 1A. Risk Factors Not applicable. Item 1B. Unresolved Staff Comments None.
Added
(“WTRO”), a Pennsylvania corporation, is a wholly owned real estate subsidiary of the Bank established to hold title to certain real estate upon which the Bank has foreclosed.
Added
The Basel III Capital Rules apply to all depository institutions as well as to all top-tier bank and savings and loan holding companies that are not subject to the Federal Reserve Small Bank Holding Company Policy Statement.
Added
Federal regulations generally require that the Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter.
Added
In addition, the Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes.
Added
The Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.
Added
In November 2021, the federal bank regulatory agencies issued a final rule requiring banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours of determining that a “computer-security incident” that rises to the level of a “notification incident,” as those terms are defined in the final rule, has occurred.
Added
A notification incident is a “computer-security incident” that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking 7 organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector.
Added
The final rule also requires bank service providers to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for four or more hours Incentive Compensation .
Added
The FDIC and the Federal Reserve review, as part of their regular, risk-focused examinations, the incentive compensation arrangements of banking organizations. These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties . The Bank operates from its main office located at 717 Main Street, Honesdale, Pennsylvania and twenty-eight additional branch offices in Northeastern Pennsylvania and upstate New York. The Bank’s total investment in office property and equipment is $37.8 million with a net book value of $17.9 million as of December 31, 2022.
Biggest changeItem 2. Properties . The Bank operates from its main office located at 717 Main Street, Honesdale, Pennsylvania and twenty-eight additional branch offices in Northeastern Pennsylvania and upstate New York. The Bank’s total investment in office property and equipment is $38.2 million with a net book value of $17.8 million as of December 31, 2023.
The Bank currently operates automated teller machines at all but one of its community office facilities, as well as one off-site ATM. The Bank leases seven of its locations.
The Bank currently operates automated teller machines at all of its community office facilities, as well as one off-site ATM. The Bank leases eight of its locations.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings . Neither the Company nor its subsidiaries are involved in any other pending legal proceedings, other than routine legal matters occurring in the ordinary course of business, which in the aggregate involve amounts which are believed by management to be immaterial to the consolidated financial condition or results of operations of the Company. Item 4.
Biggest changeOther than the foregoing, neither the Company nor its subsidiaries are involved in any other pending legal proceedings, other than routine legal matters occurring in the ordinary course of business, which in the aggregate involve amounts which are believed by management to be immaterial to the consolidated financial condition or results of operations of the Company. Item 4.
Added
Item 3. Legal Proceedings . On February 20, 2024, the Company was notified of a Complaint (the “Complaint”) entitled Ian Werkmeister vs . Wayne Bank, filed on February 12, 2024 in the United States District Court for the Middle District of Pennsylvania seeking class action status.
Added
The Plaintiff is seeking monetary recovery and other relief on behalf of themselves and one or more putative classes of other individuals similarly situated . The Complaint arises out of a widely reported data security incident involving MOVEit, a file sharing software used globally by government agencies, enterprise corporations, and financial institutions.
Added
In October of 2023 , Wayne Bank was notified by its third-party information service provider of a cyber-incident that involved unauthorized access to Wayne Bank customer information in one of the vendor’s file transfer applications.
Added
The incident involved vulnerabilities discovered in MOVEit Transfer, a file transfer software used by the Bank’s vendor to support services provided by the vendor to Wayne Bank and its related institutions.
Added
MOVEit is a commonly used secure Managed File Transfer software, which supports file transfer activities used by thousands of organizations around the world, including government agencies and major financial firms. The vulnerability discovered in MOVEit did not involve any of Wayne Bank’s internal systems and did not impact the Bank’s ability to service its customers.
Added
In December 2023, in accordance with applicable laws and regulations, the Bank began notifying its affected customers of the cyber incident and arranged for its affected customers to receive free identity monitoring service for two years. The identity monitoring services included credit monitoring, fraud consultation, and identity theft restoration.
Added
The Company believes it has meritorious defenses to the claims asserted in the Complaint and intends to vigorously defend itself against such Complaint .
Added
While we continue to measure the impact of this cyber-incident, including certain remediation expenses and other potential liabilities, we do not currently believe this incident will have a material adverse effect on our business, operations, or financial results.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures. 8 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 8 Item 6. Selected Financial Data 11 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 11 Item 7A. Quantitative and Qualitative Disclosure about Market Risk. 25 Item 8.
Biggest changeItem 4. Mine Safety Disclosures. 9 Part II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 9 Item 6. Selected Financial Data 11 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 12 Item 7A. Quantitative and Qualitative Disclosure about Market Risk. 25 Item 8.
Financial Statements and Supplementary Data. 27 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 71 Item 9A. Controls and Procedures. 71
Financial Statements and Supplementary Data. 27 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 73 Item 9A. Controls and Procedures. 74

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSet forth below is information regarding the Company’s stock repurchases during the fourth quarter of the fiscal year ended December 31, 2022. 9 Issuer Purchases of Equity Securities Total Number of Shares (or Units) purchased Average Price Paid Per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs * Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs October 1 – 31, 2022 6,545 $ 26.87 6,545 382,890 November 1 – 30, 2022 — — — — December 1 – 31, 2022 — — — — Total 6,545 $ 26.87 6,545 382,890 *On March 19, 2008, the Company announced its intention to repurchase up to 5% of its outstanding common stock (approximately 226,050 split-adjusted shares) in the open market.
Biggest changeSet forth below is information regarding the Company’s stock repurchases during the fourth quarter of the fiscal year ended December 31, 2023. 10 Issuer Purchases of Equity Securities Total Number of Shares (or Units) purchased Average Price Paid Per Share (or Unit) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs * Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs October 1 – 31, 2023 — $ — — 274,094 November 1 – 30, 2023 — — — 274,094 December 1 – 31, 2023 — — — 274,094 Total — $ — — 274,094
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . (a) Market Information 8 STOCK LISTING Norwood Financial Corp stock is traded on the Nasdaq Global Market under the symbol NWFL. As of December 31, 2022, there were approximately 1,400 registered stockholders based on the records of our transfer agent.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . (a) Market Information 9 STOCK LISTING Norwood Financial Corp stock is traded on the Nasdaq Global Market under the symbol NWFL. As of December 31, 2023, there were approximately 1,250 registered stockholders based on the records of our transfer agent.
As of December 31, 2022, the closing stock price was $33.44 per share, compared to $25.99 as of December 31, 2021. TRANSFER AGENT Computershare provides Transfer Agent services for the Company. Stockholders who may have questions regarding their stock ownership should contact the Transfer Agent at 800-662-7232, by regular mail at P.O.
As of December 31, 2023, the closing stock price was $32.91 per share, compared to $33.44 as of December 31, 2022. TRANSFER AGENT Computershare provides Transfer Agent services for the Company. Stockholders who may have questions regarding their stock ownership should contact the Transfer Agent at 800-662-7232, by regular mail at P.O.
The following firms are known to make a market in the Company’s stock: Janney Montgomery Scott, LLC ‎ Philadelphia, PA 19003 215-665-6566 RBC Capital Markets Philadelphia, PA 19103 888-848-4677 Stifel Nicolaus St,.
The following firms are known to make a market in the Company’s stock: Janney Montgomery Scott, LLC ‎ Philadelphia, PA 19103 215-665-6566 RBC Capital Markets Philadelphia, PA 19103 215-832-1500 Stifel Nicolaus St,.
Louis, MO 63102 314-342-2000 The following table sets forth the price range and cash dividends declared per share regarding common stock for the periods indicated: Closing Price Range High Low Cash dividend Year 2022 Declared per share First Quarter $ 28.85 $ 26.23 $ 0.28 Second Quarter 29.00 23.44 0.28 Third Quarter 28.01 24.04 0.28 Fourth Quarter 34.25 26.58 0.29 Year 2021 First Quarter $ 28.96 $ 23.75 $ 0.26 Second Quarter 27.07 24.75 0.26 Third Quarter 26.31 24.64 0.26 Fourth Quarter 27.60 25.42 0.28 The book value of the common stock was $20.86 per share as of December 31, 2022 compared to $25.24 per share as of December 31, 2021.
Louis, MO 63102 314-342-2000 The following table sets forth the price range and cash dividends declared per share regarding common stock for the periods indicated: Closing Price Range High Low Cash dividend Year 2023 Declared per share First Quarter $ 34.69 $ 28.65 $ 0.29 Second Quarter 32.08 24.00 0.29 Third Quarter 32.98 25.76 0.29 Fourth Quarter 34.49 24.27 0.30 Year 2022 First Quarter $ 28.85 $ 26.23 $ 0.28 Second Quarter 29.00 23.44 0.28 Third Quarter 28.01 24.04 0.28 Fourth Quarter 34.25 26.58 0.29 The book value of the common stock was $22.99 per share as of December 31, 2023 compared to $20.86 per share as of December 31, 2022.
Removed
On November 10, 2011, the Company announced that it had increased the number of shares which may be repurchased under its open-market program to 5% of its currently outstanding shares, or approximately 270,600 split-adjusted shares.
Removed
On March 30, 2021, the Company announced that it had increased the number of shares which may be repurchased under its open-market program to 5% of its currently outstanding shares, or approximately 400,000 split-adjusted shares. 10

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFor the years ended December 31, 2022 2021 2020 2019 2018 Net interest income $68,397 $65,313 $50,476 $38,606 $36,839 Provision for loan losses 900 4,200 5,450 1,250 1,725 Other income 9,926 8,056 7,182 6,355 6,837 Net realized gains on sales of loans and securities 6 269 598 423 228 Other expenses 41,044 38,578 34,440 27,311 25,975 Income before income taxes 36,385 30,860 18,366 16,823 16,204 Income tax expense 7,152 5,945 3,286 2,608 2,553 NET INCOME 29,233 24,915 15,080 14,215 13,651 Net income per share-Basic $3.59 $3.05 $2.09 $2.27 $2.19 -Diluted $3.58 $3.04 $2.09 $2.25 $2.17 Cash dividends declared $1.13 $1.06 $1.01 $0.97 $0.90 Dividend pay-out ratio 31.48% 34.75% 48.33% 42.73% 41.10% Return on average assets 1.43% 1.24% 0.97% 1.18% 1.19% Return on average equity 16.11% 12.35% 9.06% 10.83% 11.71% BALANCES AT YEAR-END Total assets 2,047,070 2,068,504 1,851,864 1,230,610 1,184,559 Loans receivable 1,473,945 1,354,931 1,410,732 924,581 850,182 Allowance for loan losses 16,999 16,442 13,150 8,509 8,452 Total deposits 1,727,727 1,756,793 1,535,385 957,529 946,780 Stockholders’ equity 167,085 205,262 194,785 137,428 122,285 Trust assets under management 184,855 195,958 168,085 170,685 151,224 Book value per share $20.86 $25.24 $23.72 $21.67 $19.43 Tier 1 Capital to risk-adjusted assets 12.49% 12.49% 11.65% 13.08% 13.04% Total Capital to risk-adjusted assets 13.58% 13.66% 12.62% 13.98% 14.00% Allowance for loan losses to total loans 1.15% 1.21% 0.93% 0.92% 0.99% Non-performing assets to total assets 0.07% 0.12% 0.24% 0.19% 0.19%
Biggest changeFor the years ended December 31, 2023 2022 2021 2020 2019 Net interest income $62,067 $68,397 $65,313 $50,476 $38,606 Provision for credit losses 5,548 900 4,200 5,450 1,250 Other income 8,270 9,926 8,056 7,182 6,355 Net realized (losses) gains on sales of loans and securities (146) 6 269 598 423 Other expenses 43,497 41,044 38,578 34,440 27,311 Income before income taxes 21,146 36,385 30,860 18,366 16,823 Income tax expense 4,387 7,152 5,945 3,286 2,608 NET INCOME 16,759 29,233 24,915 15,080 14,215 Net income per share-Basic $2.08 $3.59 $3.05 $2.09 $2.27 -Diluted $2.07 $3.58 $3.04 $2.09 $2.25 Cash dividends declared $1.17 $1.13 $1.06 $1.01 $0.97 Dividend pay-out ratio 56.25% 31.48% 34.75% 48.33% 42.73% Return on average assets 0.79% 1.43% 1.24% 0.97% 1.18% Return on average equity 9.67% 16.11% 12.35% 9.06% 10.83% BALANCES AT YEAR-END Total assets 2,201,079 2,047,070 2,068,504 1,851,864 1,230,610 Loans receivable 1,603,618 1,473,945 1,354,931 1,410,732 924,581 Allowance for credit losses 18,968 16,999 16,442 13,150 8,509 Total deposits 1,795,159 1,727,727 1,756,793 1,535,385 957,529 Stockholders’ equity 181,070 167,085 205,262 194,785 137,428 Trust assets under management 192,374 184,855 195,958 168,085 170,685 Book value per share $22.99 $20.86 $25.24 $23.72 $21.67 Tier 1 Capital to risk-adjusted assets 11.99% 12.49% 12.49% 11.65% 13.08% Total Capital to risk-adjusted assets 13.06% 13.58% 13.66% 12.62% 13.98% Allowance for credit losses to total loans 1.18% 1.15% 1.21% 0.93% 0.92% Non-performing assets to total assets 0.35% 0.07% 0.12% 0.24% 0.19% 11

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeHowever, there can be no assurance that the allowance for loan losses will be adequate to cover significant losses that might be incurred in the future. 15 The following table sets forth information with respect to the Bank’s allowance for loan losses as of December 31, 2022 and 2021: As of December 31, 2022 2021 (dollars in thousands) Total loans receivable, net of deferred fees $ 1,473,945 $ 1,354,931 Allowance balance at beginning of period $ 16,442 $ 13,150 Net (charge-offs) recoveries: Real Estate-Residential (42) 57 Real Estate-Commercial 62 (433) Real Estate-Agricultural — — Real Estate-Construction — — Commercial loans 30 (124) Other agricultural loans — (27) Consumer (393) (381) Total (343) (908) Provision Expense 900 4,200 Allowance balance at end of period $ 16,999 $ 16,442 Average loans receivable: Real Estate-Residential $ 286,545 $ 264,305 Real Estate-Commercial 635,207 595,854 Real Estate-Agricultural 65,937 64,295 Real Estate-Construction 24,472 21,793 Commercial loans 185,687 247,953 Other agricultural loans 36,352 40,215 Consumer 166,803 152,478 Total average loans outstanding $ 1,401,003 $ 1,386,893 Net (charge-offs) recoveries as a percent of average loans outstanding Real Estate-Residential (0.01) % 0.02 % Real Estate-Commercial 0.01 (0.07) Real Estate-Agricultural - - Real Estate-Construction - - Commercial loans 0.02 (0.05) Other agricultural loans - (0.07) Consumer (0.24) (0.25) Total net charge-offs 0.02 % (0.07) % Credit Quality Ratios: As a percent of year-end loans, net of unearned income: Allowance for loan losses 1.15% 1.21% Nonaccrual loans 0.08% 0.05% Nonperforming loans 0.08% 0.05% Allowance for loan losses to nonaccrual loans 1527.31% 2557.08% Allowance for loan losses to nonperforming loans 1527.31% 2240.05% 16 The following table sets forth the allocation of the Bank’s allowance for loan losses by loan category and the percent of loans in each category to total loans at the date indicated.
Biggest changeAs of December 31, 2023, the Company had $51.5 million of construction loans, which represented 3.2% of total loans outstanding and 23.5% of regulatory capital requirements. 15 The following table sets forth information with respect to the Bank’s allowance for credit losses as of December 31, 2023 and 2022: As of December 31, 2023 2022 (dollars in thousands) Total loans receivable, net of deferred fees $ 1,603,618 $ 1,473,945 Allowance balance at beginning of period $ 16,999 $ 16,442 Net (charge-offs) recoveries: Real Estate-Residential (28) (42) Real Estate-Commercial (139) 62 Real Estate-Agricultural — — Real Estate-Construction — — Commercial loans (4,932) 30 Other agricultural loans — — Consumer (979) (393) Total (6,078) (343) Impact of Adopting ASC 326 2,466 — Provision Expense 5,581 900 Allowance balance at end of period $ 18,968 $ 16,999 Average loans receivable: Real Estate-Residential $ 306,404 $ 286,545 Real Estate-Commercial 692,681 635,207 Real Estate-Agricultural 67,367 65,937 Real Estate-Construction 38,017 24,472 Commercial loans 197,598 185,687 Other agricultural loans 33,859 36,352 Consumer 229,739 166,803 Total average loans outstanding $ 1,565,665 $ 1,401,003 Net (charge-offs) recoveries as a percent of average loans outstanding Real Estate-Residential (0.01) % (0.01) % Real Estate-Commercial (0.02) 0.01 Real Estate-Agricultural - - Real Estate-Construction - - Commercial loans (2.50) 0.02 Other agricultural loans - - Consumer (0.43) (0.24) Total net charge-offs (0.39) % (0.02) % Credit Quality Ratios: As a percent of year-end loans, net of unearned income: Allowance for credit losses 1.18% 1.15% Nonaccrual loans 0.48% 0.08% Nonperforming loans 0.48% 0.08% Allowance for credit losses to nonaccrual loans 248.86% 1527.31% Allowance for credit losses to nonperforming loans 248.86% 1527.31% 16 During the twelve month period ended December 31, 2023, the Bank recognized a charge-off in the amount of $4,806,000 on one commercial credit relationship resulting from the borrower’s inability to make scheduled contractual payments.
In addition, the Company has a sample of fixed-income securities valued by another independent source. The Company does not adjust values received from its providers, unless it is evident that fair value measurement is not consistent with the Company’s policies. The Company also utilizes a third party provider to provide the fair value of certain loan servicing rights.
In addition, the Company has a sample of fixed-income securities valued by 18 another independent source. The Company does not adjust values received from its providers, unless it is evident that fair value measurement is not consistent with the Company’s policies. The Company also utilizes a third party provider to provide the fair value of certain loan servicing rights.
The Bank offsets such factors with requiring more owner equity, a lower loan to value ratio and 13 by obtaining the personal guaranties of the principals. In addition, a majority of the Bank’s commercial real estate portfolio is owner-occupied property. Commercial loans and leases are considered to have a higher degree of credit risk than secured real estate lending.
The Bank offsets such factors with requiring more owner equity, a lower loan to value ratio and by obtaining the personal guaranties of the principals. In addition, a majority of the Bank’s commercial real estate portfolio is owner-occupied property. Commercial loans and leases are considered to have a higher degree of credit risk than secured real estate lending.
The remaining deficiency is usually turned over to a collection agency. There are additional risks associated with indirect lending since we must rely on the dealer to provide accurate information to us and accurate disclosures to the borrowers. These loans are principally done on a non-recourse basis.
The remaining deficiency is usually turned over to a collection agency. 13 There are additional risks associated with indirect lending since we must rely on the dealer to provide accurate information to us and accurate disclosures to the borrowers. These loans are principally done on a non-recourse basis.
This amount consists entirely of the Company’s available for sale securities portfolio and interest rate derivatives. The Company uses valuation methodologies involving market-based or market-derived information, collectively Level 1 and 2 measurements, to measure fair value. There were no transfers into or out of Level 3 for any instruments for the years ended December 31, 2022 and 2021.
This amount consists entirely of the Company’s available for sale securities portfolio and interest rate derivatives. The Company uses valuation methodologies involving market-based or market-derived information, collectively Level 1 and 2 measurements, to measure fair value. There were no transfers into or out of Level 3 for any instruments for the years ended December 31, 2023 and 2022.
As of December 31, 2022, the Bank does not have any brokered deposits obtained through internet listing services, and no broker deposits which were secured through Cede & Co. The Bank participates in the Jumbo CD ($100,000 and over) markets with local municipalities and school districts which are typically priced on a competitive bid basis.
As of December 31, 2023, the Bank does not have any brokered deposits obtained through internet listing services, and no broker deposits which were secured through Cede & Co. The Bank participates in the Jumbo CD ($100,000 and over) markets with local municipalities and school districts which are typically priced on a competitive bid basis.
The following table sets forth certain information regarding securities not carried at fair value through earnings, weighted average yields, and maturities of the Company’s securities portfolio as of December 31, 2022 and 2021. Yields on tax-exempt securities are stated on a fully taxable equivalent basis using a Federal tax rate of 21%.
The following table sets forth certain information regarding securities not carried at fair value through earnings, weighted average yields, and maturities of the Company’s securities portfolio as of December 31, 2023 and 2022. Yields on tax-exempt securities are stated on a fully taxable equivalent basis using a Federal tax rate of 21%.
The portfolio contained no private label mortgage-backed securities, collateralized debt obligations (CDOs), or trust preferred securities, and no off-balance sheet derivatives were in use. As of December 31, 2022, the portfolio did not contain any step-up bonds.
The portfolio contained no private label mortgage-backed securities, collateralized debt obligations (CDOs), or trust preferred securities, and no off-balance sheet derivatives were in use. As of December 31, 2023, the portfolio did not contain any step-up bonds.
Introduction This Management’s Discussion and Analysis and related financial data are presented to assist in the understanding and evaluation of the financial condition and results of operations for the Company and the Bank, as of December 31, 2022 and 2021, and for the years ended December 31, 2022 and 2021.
Introduction This Management’s Discussion and Analysis and related financial data are presented to assist in the understanding and evaluation of the financial condition and results of operations for the Company and the Bank, as of December 31, 2023 and 2022, and for the years ended December 31, 2023 and 2022.
The borrower must provide proof of fire, flood (if applicable) and casualty insurance on the property serving as collateral and title insurance, and these applicable insurances must be maintained during the full term of the loan. 14 The following table sets forth maturities and interest rate sensitivity for selected categories of loans as of December 31, 2022.
The borrower must provide proof of fire, flood (if applicable) and casualty insurance on the property serving as collateral and title insurance, and these applicable insurances must be maintained during the full term of the loan. The following table sets forth maturities and interest rate sensitivity for selected categories of loans as of December 31, 2023.
Investment securities may also be pledged to secure public deposits and customer repurchase agreements. As of December 31, 2022, the average life of the portfolio was 7.3 years. The Company has maintained a relatively short average life in the portfolio in order to generate cash flow to support loan growth and maintain liquidity levels.
Investment securities may also be pledged to secure public deposits and customer repurchase agreements. As of December 31, 2023, the average life of the portfolio was 6.7 years. The Company has maintained a relatively short average life in the portfolio in order to generate cash flow to support loan growth and maintain liquidity levels.
Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing 18 parties, other than in a forced liquidation. The fair value of mortgage servicing rights as of December 31, 2022 and 2021 was $498,000 and $500,000, respectively.
Fair value for the purpose of this measurement is defined as the amount at which the asset could be exchanged in a current transaction between willing parties, other than in a forced liquidation. The fair value of mortgage servicing rights as of December 31, 2023 and 2022 was $506,000 and $498,000, respectively.
These deposits are subject to competitive bid and the Company bases its bid on current interest rates, loan demand, investment portfolio structure and the relative cost of other funding sources. As of December 31, 2022, non-interest bearing demand deposits totaled $434.5 million compared to $440.7 million at December 31, 2021.
These deposits are subject to competitive bid and the Company bases its bid on current interest rates, loan demand, investment portfolio structure and the relative cost of other funding sources. As of December 31, 2023, non-interest bearing demand deposits totaled $399.5 million compared to $434.5 million at December 31, 2022.
Home equity lines of credit tied to the prime rate are also offered. The Bank also offers indirect dealer financing of automobiles (new and used), boats, and recreational vehicles through a limited network of dealers in Northeast Pennsylvania and the Southern Tier of New York. At December 31, 2022, there were $188.4 million of indirect loans in the portfolio.
Home equity lines of credit tied to the prime rate are also offered. The Bank also offers indirect dealer financing of automobiles (new and used), boats, and recreational vehicles through a limited network of dealers in Northeast Pennsylvania and the Southern Tier of New York. At December 31, 2023, there were $247.7 million of indirect loans in the portfolio.
Other services the Bank offers its customers include cash management, direct deposit, Remote Deposit Capture, mobile deposit capture, PopMoney® mobile payments and Automated Clearing House (ACH) activity. The Bank operates thirty automated teller machines and is affiliated with the MoneyPass® ATM network. Internet banking including bill-pay is offered through the website at www.waynebank.com.
Other services the Bank offers its customers include IntraFi CDARS and ICS, cash management, direct deposit, Remote Deposit Capture, mobile deposit capture, Zelle and Automated Clearing House (ACH) activity. The Bank operates thirty automated teller machines and is affiliated with the MoneyPass® ATM network. Internet banking including bill-pay is offered through the website at www.waynebank.com.
Cash management accounts in the form of securities sold under agreements to repurchase included in short-term borrowings, totaled $51.0 million at December 31, 2022 compared to $60.8 million as of December 31, 2021. These balances represent commercial and municipal customers’ funds invested in overnight securities. The Company considers these accounts as a source of core funding.
Cash management accounts in the form of securities sold under agreements to repurchase included in short-term borrowings, totaled $54.1 million at December 31, 2023 compared to $51.0 million as of December 31, 2022. These balances represent commercial and municipal customers’ funds invested in overnight securities. The Company considers these accounts as a source of core funding.
The increase in cost was due primarily to time certificates of deposit that repriced to current market rates upon maturity, resulting in an increase in the interest rate paid from 0.71% in 2021 to 0.97% in 2022. Borrowing costs also increased in 2022, reflecting the higher interest rate environment.
The increase in cost was due primarily to time certificates of deposit that repriced to current market rates upon maturity, resulting in an increase in the interest rate paid from 0.97% in 2022 to 3.25% in 2023. Borrowing costs also increased in 2023, reflecting the higher market interest rate environment.
Construction loans are underwritten on the basis of the estimated value of the property as completed. For commercial projects, the Bank typically also provides the permanent financing after the construction period, as a commercial mortgage. The Bank also, from time to time, originates loans secured by undeveloped land.
Construction projects are inspected by contracted inspectors or bank personnel. Construction loans are underwritten on the basis of the estimated value of the property as completed. For commercial projects, the Bank typically also provides the permanent financing after the construction period, as a commercial mortgage. The Bank also, from time to time, originates loans secured by undeveloped land.
When loans are placed on non-accrual, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. As of December 31, 2022, non-performing loans totaled $1,113,000 and represented 0.08% of total loans compared to $734,000 or 0.05% as of December 31, 2021.
When loans are placed on non-accrual, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. As of December 31, 2023, non-performing loans totaled $7,622,000 and represented 0.48% of total loans compared to $1,113,000 or 0.08% as of December 31, 2022.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company uses fair value measurements to record fair value adjustments to certain financial instruments and determine fair value disclosures (see Note 16 of Notes to the Consolidated Financial Statements). Approximately $420.4 million, which represents 20.5% of total assets at December 31, 2022, consisted of financial instruments recorded at fair value on a recurring basis.
FAIR VALUE OF FINANCIAL INSTRUMENTS The Company uses fair value measurements to record fair value adjustments to certain financial instruments and determine fair value disclosures (see Note 16 of Notes to the Consolidated Financial Statements). Approximately $407.5 million, which represents 18.5% of total assets at December 31, 2023, consisted of financial instruments recorded at fair value on a recurring basis.
Time deposits over $250,000, which consist principally of school district funds, other public funds and short-term deposits from large commercial customers with maturities generally less than one year, totaled $213.6 million as of December 31, 2022, 19 compared to $257.2 million at year-end 2021.
Time deposits increased $205.3 million during 2023. 19 Time deposits over $250,000, which consist principally of school district funds, other public funds and short-term deposits from large commercial customers with maturities generally less than one year, totaled $241.8 million as of December 31, 2023, compared to $213.6 million at year-end 2022.
The fair value of financial instruments is based upon quoted market prices, when available. For those instances where a quoted price is not available, fair values are based upon observable market based parameters, as well as unobservable parameters. Any such valuation is applied consistently over time.
The fair value of financial instruments is based upon quoted market prices, when available. For those instances where a quoted price is not available, fair values are based upon observable market based parameters, as well as unobservable parameters. Any such valuation is applied consistently over time. The Bank’s loan products include loans for personal and business use.
As of December 31, 2022, $418.9 million of securities were so classified and carried at their fair value, with unrealized losses, net of tax, of $57.9 million included in accumulated other comprehensive income as a component of stockholders’ equity. The Company considers its investment portfolio a source of earnings and liquidity.
As of December 31, 2023, $406.3 million of securities were so classified and carried at their fair value, with unrealized losses, 17 net of tax, of $47.8 million included in accumulated other comprehensive income (loss) as a component of stockholders’ equity. The Company considers its investment portfolio a source of earnings and liquidity.
The payment experience on such loans typically is dependent on the successful operation of the project and these risks can be significantly impacted by the cash flow of the borrowers and market conditions for commercial office, retail, and warehouse space.
For example, commercial loans typically involve larger loan balances to single borrowers or groups of related borrowers. The payment experience on such loans typically is dependent on the successful operation of the project and these risks can be significantly impacted by the cash flow of the borrowers and market conditions for commercial office, retail, and warehouse space.
As of December 31, 2022, the total of U.S. time deposits in excess of the Federal Deposit Insurance Corporation insurance limits were $213,623,000.
As of December 31, 2023, the total of U.S. time deposits in excess of the Federal Deposit Insurance Corporation insurance limits were $269,499,000.
All loans for the construction of speculative sale homes have a loan-to-value ratio of not more than 80%. For both commercial and single-family projects, loan proceeds are disbursed during the construction phase according to a draw schedule based on the stage of completion. Construction projects are inspected by contracted inspectors or bank personnel.
The Bank’s construction lending has primarily involved lending for commercial construction projects and for single-family residences. All loans for the construction of speculative sale homes have a loan-to-value ratio of not more than 80%. For both commercial and single-family projects, loan proceeds are disbursed during the construction phase according to a draw schedule based on the stage of completion.
Interest income (fte) for the year ended December 31, 2022 totaled $76,433,000 compared to $71,857,000 in 2021. The fte yield on average earning assets was 3.90%, increasing nine basis points from the 3.81% reported last year.
Interest income (fte) for the year ended December 31, 2023 totaled $96,289,00 compared to $76,433,000 in 2022. The fte yield on average earning assets was 4.68%, increasing 78 basis points from the 3.90% reported last year.
RESULTS OF OPERATIONS Summary Net income for the Company for the year ended December 31, 2022 was $29,233,000, which was $4,318,000 higher than the $24,915,000 earned in 2021. Earnings per share on a fully diluted basis were $3.58 for 2022 compared to $3.04 in 2021.
RESULTS OF OPERATIONS Summary Net income for the Company for the year ended December 31, 2023 was $16,759,000, which was $12,474,000 lower than the $29,233,000 earned in the year ended December 31, 2022. Earnings per share on a fully diluted basis were $2.07 for 2023 compared to $3.58 in 2022.
Total other income for the year ended December 31, 2022 was $9,932,000, compared to $8,361,000 in the prior year, an increase of $1,571,000. During the year ended December 31, 2022, gains on the sale of loans and investment securities decreased $263,000 in the aggregate, while gains on the sale of foreclosed real estate owned increased $391,000.
Total other income for the year ended December 31, 2023 was $8,124,000, compared to $9,932,000 in the prior year, a decrease of $1,808,000. During the year ended December 31, 2023, gains on the sale of loans and investment securities decreased $152,000 in the aggregate, while gains on the sale of foreclosed real estate owned decreased $347,000.
Fluctuations in interest rates during the year ended December 31, 2022, impacted the fair value of the Company’s Available-for-Sale securities, and contributed to $57.1 million decrease in capital as a reduction in accumulated other comprehensive income.
Fluctuations in interest rates during the year ended December 31, 2023, impacted the fair value of the Company’s Available-for-Sale securities, and contributed to $10.0 million increase in accumulated other comprehensive income.
The mortgage-backed securities portfolio includes pass-through bonds and collateralized mortgage obligations (CMO’s) issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA). The Company evaluates the securities in its portfolio for other-than-temporary-impairment (OTTI) as fair value declines below cost.
The mortgage-backed securities portfolio includes pass-through bonds and collateralized mortgage obligations (CMO’s) issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (GNMA). The Company evaluates the securities in its portfolio for credit losses as fair value declines below cost. In estimating credit losses, management considers the financial condition and near-term prospects of the issuer.
During the year ended December 31, 2022, the resulting net interest spread (fte) decreased one basis point to 3.38%, as a nine basis point increase in the yield earned was offset by a 10 basis point increase in the cost of funds.
During the year ended December 31, 2023, the resulting net interest spread (fte) decreased to 2.47% compared to 3.38% at December 31, 2022, as a 0.78% increase in the yield earned was offset by a 1.69% increase in the cost of funds.
The higher effective tax rate reflects the increase in taxable income. 22 CAPITAL AND DIVIDENDS Total stockholders’ equity as of December 31, 2022, was $167.1 million, compared to $205.3 million as of December 31, 2021. Earnings retention, net of a $9.2 million reduction resulting from cash dividends declared, contributed to the increase.
CAPITAL AND DIVIDENDS Total stockholders’ equity as of December 31, 2023, was $181.1 million, compared to $167.1 million as of December 31, 2022. Earnings retention, net of a $9.5 million reduction resulting from cash dividends declared, contributed to the increase.
Net interest income (fte) totaled $69,164,000 for the year ended December 31, 2022 compared to $66,100,000 for 2021, an increase of $3,064,000. The resulting fte net interest spread and net interest margin were 3.38% and 3.53%, respectively, in 2022 compared to 3.39% and 3.50%, respectively, in 2021.
Net interest income (fte) totaled $62,816,000 for the year ended December 31, 2023 compared to $69,164,000 for 2022, an decrease of $6,348,000. The resulting fte net interest spread and net interest margin were 2.47% and 3.06%, respectively, in 2023 compared to 3.38% and 3.53%, respectively, in 2022.
Service charges and fees decreased $32,000 in 2022 compared to the 2021, while all other items of other income increased $1,475,000, net, in 2022. The increase in 2022 includes $1.1 million of earnings recognized due to the payoff of purchased impaired loans acquired at a discount.
Earnings and proceeds on life insurance policies decreased $75,000 in 2023 compared to 2022, while all other items of other income decreased $1,234,000, net, in 2023. The decrease in 2023 includes $1.1 million of earnings recognized in 2022 due to the payoff of purchased impaired loans acquired at a discount.
Purchases for the year 17 totaled $130.8 million, while maturities and principal reductions totaled $40.8 million and proceeds from sales were $5.1 million. The purchases were funded principally by cash flow generated from the portfolio and excess overnight liquidity.
Purchases for the year totaled $12.7 million, while maturities and principal reductions totaled $33.7 million and proceeds from sales were $3.3 million. The purchases were funded principally by cash flow generated from the portfolio.
Loans Receivable As of December 31, 2022, loans receivable totaled $1.474 billion compared to $1.355 billion as of year-end 2021, an increase of $119.0 million due primarily to a $53.7 million increase in consumer loans. Commercial real estate loans increased $22.8 million, while residential mortgage loans increased $25.8 million during the year.
Loans Receivable As of December 31, 2023, loans receivable totaled $1.604 billion compared to $1.474 billion as of year-end 2022, an increase of $129.7 million due primarily to a $64.2 million increase in consumer loans. Commercial real estate loans increased $23.6 million, while construction loans increased $19.0 million during the year ended December 31, 2023.
Other Expenses (dollars in thousands) For the year ended December 31 2022 2021 Salaries $ 13,791 $ 12,944 Employee benefits 8,280 7,664 Occupancy 3,701 3,533 Furniture and equipment 1,266 1,289 Data processing and related operations 2,948 2,415 Federal Deposit Insurance Corporation insurance assessment 612 681 Advertising 516 473 Professional fees 1,719 1,582 Postage and telephone 959 993 Office supplies 483 443 Taxes, other than income 1,013 1,122 Foreclosed real estate 73 151 Amortization of intangible assets 101 123 Other 5,582 5,201 Total $ 41,044 $ 38,614 INCOME TAXES Income tax expense for the year ended December 31, 2022 totaled $7,152,000, which resulted in an effective tax rate of 19.7%, compared to $5,945,000 and 19.3% for 2021.
Other Expenses (dollars in thousands) For the year ended December 31 2023 2022 Salaries $ 14,514 $ 13,791 Employee benefits 9,051 8,280 Occupancy 3,864 3,701 Furniture and equipment 1,219 1,266 Data processing and related operations 3,342 2,948 Federal Deposit Insurance Corporation insurance assessment 985 612 Advertising 630 516 Professional fees 1,676 1,719 Postage and telephone 981 959 Taxes, other than income 566 1,013 Foreclosed real estate 129 73 Amortization of intangible assets 85 101 Other 6,455 6,065 Total $ 43,497 $ 41,044 INCOME TAXES Income tax expense for the year ended December 31, 2023 totaled $4,387,000, which resulted in an effective tax rate of 20.7%, compared to $7,152,000 and 19.7% for 2022.
The Bank’s loan products include loans for personal and business use. Personal lending includes mortgage lending to finance principal residences and, to a lesser extent, second home dwellings.
Personal lending includes mortgage lending to finance principal residences and, to a lesser extent, second home dwellings.
As of December 31, 2022, there were no securities carried in the HTM portfolio. Securities classified as AFS are eligible to be sold due to liquidity needs or interest rate risk management.
Securities classified as AFS are eligible to be sold due to liquidity needs or interest rate risk management.
During the year ended December 31 ,2022, other expenses were $41,044,000, compared to $38,614,000 for the same period in 2021, an increase of $2,430,000. Salaries and benefits costs increased $1,463,000 in 2022, while occupancy and equipment costs rose $145,000. All other operating expenses increased $822,000, net, in 2022.
During the year ended December 31 ,2023, other expenses were $43,497,000, compared to $41,044,000 for the same period in 2022, an increase of $2,453,000. Salaries and benefits costs increased $1,494,000 in 2023, while data processing costs increased $394,000. Taxes, other than income decreased $447,000. All other operating expenses increased $1,012,000, net, in 2023.
NON-GAAP FINANCIAL MEASURES This Annual Report contains or references fully taxable-equivalent interest income and net interest income, which are non-GAAP financial measures. Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using a marginal tax rate of 21%.
Tax-equivalent interest income and net interest income are derived from GAAP interest income and net interest income using a marginal tax rate of 21%.
The following table reconciles net interest income to net interest income on a fully taxable-equivalent basis: (dollars in thousands) Years ended December 31, 2022 2021 Net interest income $ 68,397 $ 65,313 Taxable-equivalent basis adjustment using a 21% marginal tax rate 767 787 Net interest income on a fully taxable equivalent basis $ 69,164 66,100 23 CONSOLIDATED AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND RATES (Tax-Equivalent Basis, dollars in thousands) Year Ended December 31 2022 2021 Average Average Average Average Balance Interest Rate Balance Interest Rate (2) (1) (2) (1) ASSETS Interest-earning assets: Interest-bearing deposits with banks $ 77,496 $ 602 0.78 % $ 175,854 $ 266 0.15 % Securities available for sale: Taxable 405,374 7,262 1.79 261,912 4,055 1.55 Tax-exempt 78,224 2,265 2.90 61,610 1,889 3.06 Total securities available for sale 483,598 9,527 1.97 323,522 5,944 1.84 Loans receivable (3)(4) 1,401,003 66,304 4.73 1,386,893 65,647 4.73 Total interest-earning assets 1,962,097 76,433 3.90 1,886,269 71,857 3.81 Noninterest earning assets: Cash and due from banks 24,560 23,828 Allowance for loan losses (16,854) (15,263) Other assets 77,800 114,210 Total noninterest earning assets 85,506 122,775 TOTAL ASSETS $ 2,047,603 $ 2,009,044 LIABILITIES AND STOCKHOLDERS’ EQUITY Interest-bearing liabilities: Interest-bearing demand and money market $ 539,518 1,506 0.28 $ 475,706 894 0.19 Savings 298,933 242 0.08 265,981 169 0.06 Time 487,674 4,723 0.97 517,087 3,694 0.71 Total interest-bearing deposits 1,326,125 6,471 0.49 1,258,774 4,757 0.38 Short-term borrowings 69,711 524 0.75 73,810 284 0.38 Other borrowings 11,045 274 2.48 36,196 716 1.98 Total interest-bearing liabilities 1,406,881 7,269 0.52 1,368,780 5,757 0.42 Noninterest-bearing liabilities: Noninterest-bearing demand deposits 442,607 423,404 Other liabilities 16,616 15,179 Total noninterest-bearing liabilities 459,223 438,583 Stockholders’ equity 181,499 201,681 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,047,603 $ 2,009,044 Net Interest Income/spread (tax equivalent basis) 69,164 3.38 % 66,100 3.39 % Tax-equivalent basis adjustment (767) (787) Net Interest Income $ 68,397 $ 65,313 Net interest margin (tax equivalent basis) 3.53 % 3.50 % (1) Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 21%.
The following table reconciles net interest income to net interest income on a fully taxable-equivalent basis: (dollars in thousands) Years ended December 31, 2023 2022 Net interest income $ 62,067 $ 68,397 Tax-equivalent basis adjustment using a 21% marginal tax rate 749 767 Net interest income on a fully taxable equivalent basis $ 62,816 $ 69,164 23 CONSOLIDATED AVERAGE BALANCE SHEETS WITH RESULTANT INTEREST AND RATES (Tax-Equivalent Basis, dollars in thousands) Year Ended December 31 2023 2022 Average Average Average Average Balance Interest Rate Balance Interest Rate (2) (1) (2) (1) ASSETS Interest-earning assets: Interest-bearing deposits with banks $ 7,537 $ 409 5.43 % $ 77,496 $ 602 0.78 % Securities available for sale: Taxable 411,633 8,390 2.04 405,374 7,262 1.79 Tax-exempt 70,598 1,940 2.75 78,224 2,265 2.90 Total securities available for sale 482,231 10,330 2.14 483,598 9,527 1.97 Loans receivable (3)(4) 1,565,665 85,550 5.46 1,401,003 66,304 4.73 Total interest-earning assets 2,055,433 96,289 4.68 1,962,097 76,433 3.90 Noninterest earning assets: Cash and due from banks 26,633 24,560 Allowance for credit losses (18,122) (16,854) Other assets 64,626 77,800 Total noninterest earning assets 73,137 85,506 TOTAL ASSETS $ 2,128,570 $ 2,047,603 LIABILITIES AND STOCKHOLDERS’ EQUITY Interest-bearing liabilities: Interest-bearing demand and money market $ 466,329 5,824 1.25 $ 539,518 1,506 0.28 Savings 248,629 378 0.15 298,933 242 0.08 Time 610,726 19,827 3.25 487,674 4,723 0.97 Total interest-bearing deposits 1,325,684 26,029 1.96 1,326,125 6,471 0.49 Short-term borrowings 93,455 3,048 3.26 69,711 524 0.75 Other borrowings 94,931 4,396 4.63 11,045 274 2.48 Total interest-bearing liabilities 1,514,070 33,473 2.21 1,406,881 7,269 0.52 Noninterest-bearing liabilities: Noninterest-bearing demand deposits 418,631 442,607 Other liabilities 22,595 16,616 Total noninterest-bearing liabilities 441,226 459,223 Stockholders’ equity 173,274 181,499 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,128,570 $ 2,047,603 Net Interest Income/spread (tax equivalent basis) 62,816 2.47 % 69,164 3.38 % Tax-equivalent basis adjustment (749) (767) Net Interest Income $ 62,067 $ 68,397 Net interest margin (tax equivalent basis) 3.06 % 3.53 % (1) Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 21%.
Other Income (dollars in thousands) For the year ended December 31 2022 2021 Service charges on deposit accounts $ 420 $ 398 ATM Fees 452 443 Overdraft Fees 1,155 1,029 Safe deposit box rental 93 100 Loan related service fees 928 1,368 Debit card 2,495 2,228 Fiduciary activities 845 748 Commissions on mutual funds & annuities 118 127 Earnings on and proceeds from bank-owned life insurance 1,087 941 Other income 1,906 674 9,499 8,056 Net realized gains on sales of securities 3 92 Gains on sales of loans 3 177 Gains on sales of foreclosed real estate owned 427 36 Total $ 9,932 $ 8,361 OTHER EXPENSES Other expenses totaled $41,044,000 for the year ended December 31, 2022, compared to $38,614,000 in the 2021 year.
During 2023, gains on the sale of loans and investment securities decreased $152,000 in the aggregate, while all other items of other income decreased $893,000, net, due primarily to $1.1 million of income recognized in 2022 on previously acquired purchased impaired loans that were carried at a discount. 21 Other Income (dollars in thousands) For the year ended December 31 2023 2022 Service charges on deposit accounts $ 428 $ 420 ATM Fees 446 452 Overdraft Fees 1,344 1,155 Safe deposit box rental 92 93 Loan related service fees 706 928 Debit card 2,301 2,495 Fiduciary activities 898 845 Commissions on mutual funds & annuities 296 118 Earnings on and proceeds from bank-owned life insurance 1,012 1,087 Other income 667 1,906 8,190 9,499 Net realized (losses) gains on sales of securities (209) 3 Gains on sales of loans 63 3 Gains on sales of foreclosed real estate owned 80 427 Total $ 8,124 $ 9,932 OTHER EXPENSES Other expenses totaled $43,497,000 for the year ended December 31, 2023, compared to $41,044,000 in the 2022 fiscal year.
The allocation is made for analytical purposes and is not necessarily indicative of the categories in which credit losses may occur. The total allowance is available to absorb losses from any type of loan.
The following table sets forth the allocation of the Bank’s allowance for credit losses by loan category and the percent of loans in each category to total loans at the date indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which credit losses may occur.
The following table indicates the amount of time deposits that are uninsured by time remaining until maturity as of December 31, 2022: Amount (in thousands) Three months or less $ 46,123 Over 3 through 6 months 51,847 Over 6 months through 12 months 67,281 Over 12 months 48,372 $ 213,623 Total deposits as of December 31, 2022, were $1.728 billion, a decrease of $29.1 million from December 31, 2021.
The following table indicates the amount of time deposits that are uninsured by time remaining until maturity as of December 31, 2023: Amount (in thousands) Three months or less $ 91,837 Over 3 through 6 months 73,208 Over 6 months through 12 months 76,793 Over 12 months 27,661 $ 269,499 Total deposits as of December 31, 2023, were $1.795 billion, an increase of $67.4 million from December 31, 2022.
Please refer to the discussion of the allowance for loan losses calculation under “Allowance for Loan Losses and Non-performing Assets” in the “Financial Condition” section.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses and the determination of goodwill impairment. Please refer to the discussion of the allowance for credit losses calculation under “Allowance for Credit Losses and Non-performing Assets” in the “Financial Condition” section.
Net charge-offs for 2022 totaled $343,000 and represented 0.02% of average loans compared to $908,000 and 0.07% of average loans in 2021. Management assesses the adequacy of the allowance for loan losses on a quarterly basis. The process includes a review of the risks inherent in the loan portfolio.
Net charge-offs for 2023 totaled $6,078,000 and represented 0.39% of average loans compared to $343,000 and 0.02% of average loans in 2022. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the allowance for credit losses.
The Company classifies its investments into two categories: held to maturity (HTM) and available for sale (AFS). The Company does not have trading securities. Securities classified as HTM are those in which the Company has the ability and the intent to hold the security until contractual maturity.
The Company does not have trading securities. Securities classified as HTM are those in which the Company has the ability and the intent to hold the security until contractual maturity. As of December 31, 2023, there were no securities carried in the HTM portfolio.
Years Ended December 31, 2022 2021 Average Average Balance Rate Paid Balance Rate Paid (dollars in thousands) Noninterest-bearing demand $ 442,607 — % $ 423,404 — % Interest-bearing demand 233,000 0.22 180,080 0.11 Money Market 306,518 0.32 295,626 0.23 Savings 298,933 0.08 265,981 0.06 Time 487,674 0.97 517,087 0.71 Total $ 1,768,732 $ 1,682,178 As of December 31, 2022 and 2021, the total of uninsured deposits of the Company was $213,623,000 and $235,515,000, respectively.
Years Ended December 31, 2023 2022 Average Average Balance Rate Paid Balance Rate Paid (dollars in thousands) Noninterest-bearing demand $ 418,631 — % $ 442,607 — % Interest-bearing demand 228,909 1.13 233,000 0.22 Money Market 237,421 1.37 306,518 0.32 Savings 248,629 0.15 298,933 0.08 Time 610,725 3.25 487,674 0.97 Total $ 1,744,315 $ 1,768,732 As of December 31, 2023 and 2022, the total of uninsured deposits of the Company was $644,486,000 and $629,101,000, respectively.
Interest expense was $7,269,000 in 2022, which resulted in an average cost of interest-bearing liabilities of 0.52% compared to total interest expense of $5,757,000 in 2021, with an average cost of 0.42%. Total interest-bearing deposits cost was 0.49% in 2022, which was an increase of 11 basis points over the 2021 year.
Interest expense was $33,473,000 for the year ended December 31, 2023, which resulted in an average cost of interest-bearing liabilities of 2.21% compared to total interest expense of $7,269,000 during the year ended December 31, 2022, with an average cost of 0.52%.
This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the Company and its results of operations. 11 Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the determination of other-than-temporary impairment on securities, the determination of goodwill impairment and the fair value of financial instruments.
This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the Company and its results of operations.
FINANCIAL CONDITION Total Assets Total assets as of December 31, 2022 were $2.047 billion compared to $2.069 billion as of year-end 2021, a decrease of $21.4 million. The decrease in assets was primarily attributable to the $182.6 million decrease in interest-bearing deposits with banks.
FINANCIAL CONDITION Total Assets Total assets as of December 31, 2023 were $2.201 billion compared to $2.047 billion as of year-end 2022, an increase of $154.0 million. The increase in assets was primarily attributable to a $129.7 million increase in loans receivable.
Non-maturity interest-bearing deposits increased $2.0 million in 2022, while non-interest bearing demand deposits decreased $6.1 million. Time deposits decreased $24.9 million during 2022.
Non-maturity interest-bearing deposits decreased $102.9 million in 2023, while non-interest bearing demand deposits decreased $35.0 million.
As of December 31, 2022 the Company had a leverage capital ratio of 9.36%, a Tier 1 risk-based capital ratio and a common equity Tier 1 risk-based capital ratio of 12.49%, and a total risk-based capital ratio of 13.58%, compared to 8.51%, 12.49% and 13.66%, respectively, at December 31, 2021.
As of December 31, 2023 the Company had a leverage capital ratio of 9.00%, a Tier 1 risk-based capital ratio and a common equity Tier 1 risk-based capital ratio of 11.99%, and a total risk-based capital ratio of 13.06%, compared to 9.36%, 12.49% and 13.58%, respectively, at December 31, 2022. 22 NON-GAAP FINANCIAL MEASURES This Annual Report contains or references fully taxable-equivalent interest income and net interest income, which are non-GAAP financial measures.
Consumer lending, including indirect financing, provides benefits to the Bank’s asset/liability management program by reducing the Bank’s exposure to interest rate changes, due to their generally shorter terms. Such loans may entail additional credit risks compared to owner-occupied residential mortgage lending especially when unsecured or secured by collateral such as automobiles that depreciate rapidly.
Such loans may entail additional credit risks compared to owner-occupied residential mortgage lending especially when unsecured or secured by collateral such as automobiles that depreciate rapidly. Commercial lending including real-estate related loans entail significant additional risks when compared with residential real estate and consumer lending.
The increase in the effective tax rate reflects the increased level of taxable income, which is taxed at the marginal rate of 21%. 20 The following table sets forth changes in net income (in thousands): Net income 2021 $ 24,915 Net interest income 3,084 Provision for loan losses 3,300 Net gains on sales of loans and securities (263) Net gains on sales of foreclosed real estate 391 Other income 1,443 Salaries and employee benefits (1,463) Occupancy, furniture and equipment (145) Date processing and related operations (533) Professional fees (137) Other expenses (152) Income tax expense (1,207) Net income 2022 $ 29,233 NET INTEREST INCOME Net interest income is the most significant source of revenue for the Company and represented 87.3% of total revenue for the year ended December 31, 2022.
The effective tax rate in 2023 was 20.7% compared to 19.7% in 2022. 20 The following table sets forth changes in net income (in thousands): Net income 2022 $ 29,233 Net interest income (6,330) Provision for credit losses (4,648) Net gains on sales of loans and securities (152) Net gains on sales of foreclosed real estate (347) Other income (1,309) Salaries and employee benefits (1,494) Occupancy, furniture and equipment (116) Date processing and related operations (394) Advertising (113) FDIC insurance assessment (373) Indirect dealer fees (547) Shares tax expense 447 Other expenses 137 Income tax expense 2,765 Net income 2023 $ 16,759 NET INTEREST INCOME Net interest income is the most significant source of revenue for the Company and represented 88.4% of total revenue for the year ended December 31, 2023.
Commercial lending activities include lines of credit, revolving credit, term loans, mortgages, various forms of secured lending and a limited amount of letter of credit facilities. The rate structure may be fixed, immediately repricing tied to the prime rate or adjustable at set intervals.
Commercial loans and commercial mortgages are provided to local small and mid-sized businesses at a variety of terms and rate structures. Commercial lending activities include lines of credit, revolving credit, term loans, mortgages, various forms of secured lending and a limited amount of letter of credit facilities.
Also included in commercial loans are municipal finance lending in which the Bank has been active in recent years. Municipal lending includes both general obligations of local taxing authorities and revenue obligations of specific revenue 12 producing projects such as sewer authorities and educational units.
Municipal lending includes both general obligations of local taxing authorities and revenue obligations of specific revenue producing projects such as sewer authorities and educational units. At December 31, 2023, the Bank had approximately $149.2 million in loans on commercial rentals, as well as $115.2 million of loans outstanding on residential rentals, which are its largest lending concentrations.
The return on average assets for the year ended December 31, 2022, was 1.43%, and the return on average equity was 16.11%, compared to 1.24% and 12.35%, respectively, for the year ended December 31, 2021. Net interest income increased $3,084,000 for the year ended December 31, 2022, which offset a $2,430,000 increase in other expenses during the 2022 year.
The return on average assets for the year ended December 31, 2023, was 0.79%, and the return on average equity was 9.67%, compared to 1.43% and 16.11%, respectively, for the year ended December 31, 2022. Net interest income decreased $6,330,000 for the year ended December 31, 2023.
The tax-equivalent yield on total loans remained stable at 4.73% in 2022, while average loans outstanding increased $14.1 million, resulting in an increase in interest income (fte) from loans of $657,000. The yield on securities increased 13 basis points in 2022 due primarily to higher yields on new purchases.
The yield on securities increased 17 basis points in 2023 due primarily to higher yields on new securities purchased during the year ended December 31, 2023. During the year ended December 31, 2023, while average securities outstanding decreased $1.4 million, interest income (fte) from securities outstanding, increased $803,000 from the year ended December 31, 2022.
Salaries and employee benefits costs increased $1,463,000 in 2022, while occupancy and equipment costs increased $145,000. During the year ended December 31, 2022, all other operating expenses increased $822,000, net. The Company’s efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income, was 51.9% in 2022 compared to 51.8% in 2021.
The Company’s efficiency ratio, which measures total other expenses as a percentage of net interest income (fte) plus other income, was 61.3% in 2023 compared to 51.9% in 2022.
As of December 31, 2022 2021 % of % of Loans Loans to Total to Total Amount Loans Amount Loans (dollars in thousands) Real estate – residential $ 2,833 20.3 % $ 2,175 20.1 % Real estate – commercial 8,293 44.2 10,878 46.4 Real estate – agricultural 259 4.7 — 4.6 Real estate – construction 409 2.2 133 1.6 Commercial 2,445 12.7 1,490 13.7 Other agricultural loans 124 2.4 — 2.8 Consumer 2,636 13.5 1,766 10.8 Total $ 16,999 100 % $ 16,442 100 % As a result of the acquisition of UpState, the Company added $107.3 million of agricultural loans to the loan portfolio.
As of December 31, 2023 2022 % of % of Loans Loans to Total to Total Amount Loans Amount Loans (dollars in thousands) Real estate – residential $ 1,351 7.1 % $ 2,833 20.3 % Real estate – commercial 11,871 62.6 8,293 44.2 Real estate – agricultural 58 0.3 259 4.7 Real estate – construction 933 4.9 409 2.2 Commercial 1,207 6.4 2,445 12.7 Other agricultural loans 94 0.5 124 2.4 Consumer 3,454 18.2 2,636 13.5 Total $ 18,968 100 % $ 16,999 100 % Additional information about the allowance for credit losses at December 31, 2023 is presented under “Item 1.
For the year ended December 31, 2022, there were $5,000 of charge-offs for this portfolio, with recoveries of $5,000 in 2022. As of December 31, 2022, the Company considered its concentration of credit risk profile to be acceptable. The highest concentrations are in commercial rentals and the residential rentals categories.
As of December 31, 2023 and 2022, the Company considered its concentration of credit risk to be acceptable. As of December 31, 2023, the highest concentrations are in commercial rentals and the residential rentals category, with loans outstanding of $149.2 million, or 9.3% of loans outstanding, to commercial rentals, and $115.2 million, or 7.2% of loans outstanding, to residential rentals.
A $3,300,000 decrease in the provision for loan losses, and a $1,571,000 increase in other income during the year ended December 31, 2022, also contributed to the positive variance. For the year ended December 31, 2022, fully taxable equivalent (“fte”) net interest income totaled $69,164,000, which was an increase of $3,064,000 from the year ended 2021 total.
For the year ended December 31, 2023, fully taxable equivalent (“fte”) net interest income totaled $62,816,000, a decrease of $6,348,000 from the year ended December 31, 2022 total. Average loans outstanding increased $164.7 million in 2023, which contributed to an increase in interest income (fte) of $19.2 million. During the year ended December 31, 2023, average interest-bearing deposits decreased $441,000.
During the year ended December 31, 2022, average interest-bearing deposits increased $67.4 million, resulting in a $1.7 million increase in total interest expense on deposits. The cost of borrowed funds decreased $202,000 in 2022, compared to the prior year due primarily to a lower level of borrowings.
During the year ended December 31, 2023, however, total interest expense increased $19.6 million due increased market interest rates. The cost of borrowed funds increased $6.6 million in 2023, compared to the prior year due to an increase in borrowings, and higher market interest rates.
The increase in the level of non-performing loans was due primarily to one credit relationship in the amount of $452,000 that was transferred to non-accrual status in the fourth quarter of 2022. Foreclosed real estate owned totaled $346,000 as of December 31, 2022 and $1,742,000 as of December 31, 2021.
The increase in the level of non-performing loans was due primarily to one commercial relationship in the amount of $6,956,000 that was transferred to non-accrual status in the third quarter of 2023. As of December 31, 2023, the carrying value of this credit was $4,150,000. In January 2024, a $3,900,000 payment was received through the sale of assets.
During 2022, one property with a carrying value of $1,396,000 was disposed of through a sale. The Company recorded a gain of $427,000 on the sale of the property during the year ended December 31, 2022. Securities The securities portfolio consists of U.S. Treasury securities, U.S. Government agencies, mortgage-backed securities issued by government sponsored entities and municipal obligations.
During 2023, one property with a carrying value of $346,000 was disposed of through a sale, after a partial write down of $54,000, and one property with a carrying value of $290,000 was disposed of through a sale. The Company recorded a gain of $80,000 on the sale of these two properties during the year ended December 31, 2023.
The Company does not originate option ARM products, interest only loans, sub-prime loans or loans with initial teaser rates in its residential real estate portfolio. As of December 31, 2022, the Company had $14,437,000 million of junior lien home equity loans.
When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the allowance. The Company has limited exposure to higher-risk loans. The Company does not originate option ARM products, interest only loans, sub-prime loans or loans with initial teaser rates in its residential real estate portfolio.
Increase/(Decrease) (dollars in thousands) 2022 compared to 2021 Variance due to Volume Rate Net INTEREST-EARNING ASSETS: Interest-bearing deposits $ (400) $ 736 $ 336 Securities available for sale: Taxable 2,325 882 3,207 Tax-exempt securities 498 (122) 376 Total securities available for sale 2,823 760 3,583 Loans receivable 657 — 657 Total interest-earning assets 3,080 1,496 4,576 INTEREST-BEARING LIABILITIES Interest-bearing demand and money market 165 447 612 Savings 22 51 73 Time (277) 1,306 1,029 Total interest-bearing deposits (90) 1,804 1,714 Short-term borrowings (30) 270 240 Other borrowings (507) 65 (442) Total interest-bearing liabilities (627) 2,139 1,512 Net interest income (tax-equivalent basis) $ 3,707 $ (643) $ 3,064 Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.
Increase/(Decrease) (dollars in thousands) 2023 compared to 2022 Variance due to Volume Rate Net INTEREST-EARNING ASSETS: Interest-bearing deposits $ (818) $ 625 $ (193) Securities available for sale: Taxable 125 1,003 1,128 Tax-exempt securities (216) (109) (325) Total securities available for sale (91) 894 803 Loans receivable 8,474 10,772 19,246 Total interest-earning assets 7,565 12,291 19,856 INTEREST-BEARING LIABILITIES Interest-bearing demand and money market (795) 5,113 4,318 Savings (64) 200 136 Time 3,370 11,734 15,104 Total interest-bearing deposits 2,511 17,047 19,558 Short-term borrowings 626 1,898 2,524 Other borrowings 2,702 1,420 4,122 Total interest-bearing liabilities 5,839 20,365 26,204 Net interest income (tax-equivalent basis) $ 1,726 $ (8,074) $ (6,348) Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.
Income tax expense for the 2022 year totaled $7,152,000, which was an increase of $1,207,000 from the 2021 year ended. The effective tax rate in 2022 was 19.7% compared to 19.3% in 2021.
Income tax expense for the 2023 year totaled $4,387,000, which was a decrease of $2,765,000 from the 2022 year ended.
In estimating OTTI, management considers (1) the length of time and the extent of the decline in fair value and (2) the financial condition and near-term prospects of the issuer. As of December 31, 2022, the Company held 343 investment securities in a loss position, which had a combined unrealized loss of $73.3 million.
As of December 31, 2023, the Company held 336 investment securities in a loss position, which had a combined unrealized loss of $60.6 million. Management believes that these losses are principally due to changes in interest rates and concluded that the decline in the value of these securities was not indicative of a credit loss.
Removed
In estimating other-than-temporary impairment losses on securities, the Company considers 1) the length of time and extent to which the fair value has been less than cost and 2) the financial condition of the issuer.
Added
The rate structure may be fixed, immediately repricing tied to the prime rate 12 or adjustable at set intervals. Also included in commercial loans are municipal finance lending in which the Bank has been active in recent years.
Removed
The Company does not have the intent to sell these securities and it is more likely than not that it will not sell the securities before recovery of their cost basis. The Company believes that any unrealized losses at December 31, 2022 and 2021 represent temporary impairment of the securities.
Added
These risks have not had an adverse effect on the Bank. Consumer lending, including indirect financing, provides benefits to the Bank’s asset/liability management program by reducing the Bank’s exposure to interest rate changes, due to their generally shorter terms.
Removed
In connection with the acquisition of UpState in 2020, the Company acquired approximately $413.5 million in loans, including $37.3 million in residential real estate loans, $289.0 million in commercial real estate loans, $92.0 million in commercial, financial and agricultural loans, and $2.3 million in consumer loans.
Added
One Year After One to After Five Years After or Less Five Years Through 15 years 15 years Total (dollars in thousands) Real Estate: Residential $ 42,432 $ 118,830 $ 115,031 $ 40,253 $ 316,546 Commercial 70,547 179,159 340,895 84,555 675,156 Agricultural 4,309 16,808 31,868 10,874 63,859 Construction 2,602 7,253 22,160 19,438 51,453 Commercial loans 85,865 85,367 24,849 4,495 200,576 Other agricultural loans 11,803 16,597 3,290 276 31,966 Consumer loans 99,549 151,510 12,470 792 264,321 Total $ 317,107 $ 575,524 $ 550,563 $ 160,683 $ 1,603,877 Loans with fixed rates $ 34,440 $ 181,822 $ 394,898 $ 232,780 $ 843,940 Loans with floating rates 219,481 490,418 50,038 - 759,937 Total $ 253,921 $ 672,240 $ 444,936 $ 232,780 $ 1,603,877 14 allowance for CREDIT Losses The allowance for credit losses totaled $18,968,000 as of December 31, 2023, and represented 1.18% of total loans receivable compared to $16,999,000 and 1.15% of total loans as of year-end 2022.
Removed
As of December 31, 2022, the approximate outstanding balance of these acquired loans was $233.3 million.
Added
As of December 31, 2023, the Company had $16,805,000 million of junior lien home equity loans. For the year ended December 31, 2023, there were $0 of charge-offs for this portfolio, with recoveries of $0 in 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+6 added−2 removed9 unchanged
Biggest changeFor example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.
Biggest changeThe interest rate sensitivity of assets 25 and liabilities could vary substantially if differing assumptions were used or if actual experience differs from the assumptions used in the analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in differing degrees to changes in market interest rates.
The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance. 26 LIQUIDITY Liquidity is the ability to fund customers’ borrowing needs and their deposit withdrawal requests while supporting asset growth.
The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance. LIQUIDITY Liquidity is the ability to fund customers’ borrowing needs and their deposit withdrawal requests while supporting asset growth.
As of December 31, 2022, the level of net interest income at risk in a ± 200 basis points increase was within the Company’s policy limit of a decline less than 10% of net interest income. Imbalances in repricing opportunities at a given point in time reflect interest-sensitivity gaps measured as the difference between rate-sensitive assets and rate-sensitive liabilities.
As of December 31, 2023, the level of net interest income at risk in a ± 200 basis points increase was within the Company’s policy limit of a decline less than 10% of net interest income. Imbalances in repricing opportunities at a given point in time reflect interest-sensitivity gaps measured as the difference between rate-sensitive assets and rate-sensitive liabilities.
The Company’s primary sources of liquidity include deposit generation, asset maturities, cash flow from payments on loans and securities and access to borrowing from the Federal Home Loan Bank and other correspondent banks.
The Company’s primary sources of liquidity include deposit generation, asset maturities, cash flow from payments on loans and 26 securities and access to borrowing from the Federal Reserve Discount Window, the Federal Home Loan Bank and other correspondent banks.
Interest rates may change at different rates changing the shape of the yield curve. The level of rates on the investment securities may also be affected by the spread relationship between different investments. Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed.
The level of rates on the investment securities may also be affected by the spread relationship between different investments. Further, in the event of a significant change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed.
These are static gap measurements that do not take into account any future activity, and as such are principally used as early indicators of potential interest rate exposures over specific intervals. At December 31, 2022, the Bank had a negative 90-day interest sensitivity gap of $46.7 million or 2.3% of total assets.
These are static gap measurements that do not take into account any future activity, and as such are principally used as early indicators of potential interest rate exposures over specific intervals. At December 31, 2023, the Bank had a negative 90-day interest sensitivity gap of $43.6 million or 1.98% of total assets.
As of December 31, 2022, the Company had cash and cash equivalents of $31.9 million in the form of cash, due from banks, balances with the Federal Reserve Bank, and short-term deposits with other institutions. In addition, at December 31, 2022, the Company had total securities available for sale of $418.9 million, which could be used for liquidity needs.
As of December 31, 2023, the Company had cash and cash equivalents of $66.1 million in the form of cash, due from banks, balances with the Federal Reserve Bank, and short-term deposits with other institutions. In addition, at December 31, 2023, the Company had securities available for sale of $406.3 million, which could be used for liquidity needs.
The level of RSA and RSL for an interval is managed by ALCO strategies, including adjusting the average life of the investment portfolio through purchases and sales, pricing of deposit liabilities to attract long or short-term time deposits, utilizing borrowings to fund loan growth, loan pricing to encourage variable-rate products and evaluation of loan sales of long-term, fixed-rate mortgages. 25 The Company analyzes and measures the time periods in which RSA and RSL will mature or reprice in accordance with their contractual terms and assumptions.
The level of RSA and RSL for an interval is managed by ALCO strategies, including adjusting the average life of the investment portfolio through purchases and sales, pricing of deposit liabilities to attract long or short-term time deposits, utilizing borrowings to fund loan growth, loan pricing to encourage variable-rate products and evaluation of loan sales of long-term, fixed-rate mortgages.
This totals $450.8 million and represents 22.0% of total assets as of December 31, 2022, compared to $613.5 million and 29.7% of total assets as of December 31, 2021. The Company also monitors other liquidity measures for compliance with Company policy guidelines. Based upon these measures, the Company believes its liquidity position is adequate.
This results in the Company having total liquidity at December 31, 2023 of $472.4 million, or 21.5% of total assets as, of December 31, 2023, compared to total liquidity of $450.8 million, or 22.0% of total assets as of December 31, 2022. The Company also monitors other liquidity measures for compliance with Company policy guidelines.
The Company maintains established lines of credit with the Federal Home Loan Bank of Pittsburgh (FHLB), the Atlantic Community Bankers Bank (ACBB) and other correspondent banks, which support liquidity needs. The total available credit under all lines was $190.0 million, with $42.3 million outstanding at December 31, 2022 and $0 million outstanding at December 31, 2021.
Based upon these measures, the Company believes its liquidity is adequate. The Company maintains established lines of credit with the Federal Reserve Bank, the Federal Home Loan Bank of Pittsburgh (FHLB), the Atlantic Community Bankers Bank (ACBB) and other correspondent banks, which support liquidity needs.
The maximum borrowing capacity from FHLB at December 31, 2022 was $655.3 million. As of December 31, 2022, the Company had $40.0 million in term borrowings from the FHLB, compared to $30.0 million at December 31, 2021. Outstanding Letters of Credit to secure public funds totaled $92.9 million and $127.9 million at December 31, 2022 and 2021, respectively.
As of December 31, 2023, the Company had $30.0 million of term borrowings from the Federal Reserve Bank under the Bank Term Funding Program, and $114.2 million in borrowings from the FHLB, compared to $0 and $40.0 million, respectively, at December 31, 2022.
Removed
Management believes that the assumptions used are reasonable. The interest rate sensitivity of assets and liabilities could vary substantially if differing assumptions were used or if actual experience differs from the assumptions used in the analysis.
Added
The Company analyzes and measures the time periods in which RSA and RSL will mature or reprice in accordance with their contractual terms and assumptions. Management believes that the assumptions used are reasonable.
Removed
The following table displays interest-sensitivity as of December 31, 2022 (dollars in thousands): 3 Months 3-12 Over Or Less Months 1-3 Years 3 Years Total Federal funds sold and interest-bearing deposits $ 3,019 $ — $ — $ — $ 3,019 Securities 8,225 24,995 77,885 307,822 418,927 Loans Receivable 218,811 229,896 445,384 579,854 1,473,945 Total Rate Sensitive Assets (RSA) $ 230,055 $ 254,891 $ 523,269 $ 887,676 $ 1,895,891 Non-maturity interest-bearing deposits $ 123,533 $ 119,994 $ 318,673 $ 227,228 $ 789,428 Time Deposits 90,296 245,962 154,207 13,305 503,770 Borrowings 62,902 47,387 22,926 — 133,215 Total Rate Sensitive Liabilities (RSL) $ 276,731 $ 413,343 $ 495,806 $ 240,533 $ 1,426,413 Interest sensitivity gap $ (46,676) $ (158,452) $ 27,463 $ 647,143 $ 469,478 Cumulative gap (46,676) (205,128) (177,665) 469,478 RSA/RSL-cumulative 83.1 % 70.3 % 85.0 % 138.5 % As of December 31, 2021 Interest sensitivity gap $ 175,100 $ (170,159) $ 11,040 $ 524,379 $ 540,360 Cumulative gap 175,100 4,941 15,981 540,360 RSA/RSL-cumulative 170.5 % 100.7 % 101.4 % 138.4 % Certain interest-bearing deposits with no stated maturity dates are included in the interest-sensitivity table above.
Added
The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Interest rates may change at different rates changing the shape of the yield curve.
Added
The following table displays interest-sensitivity as of December 31, 2023 (dollars in thousands): 3 Months 3-12 Over Or Less Months 1-3 Years 3 Years Total Federal funds sold and interest-bearing deposits $ 37,587 $ — $ — $ — $ 37,587 Securities 16,099 41,137 65,648 283,375 406,259 Loans Receivable 237,678 257,551 559,921 548,468 1,603,618 Total Rate Sensitive Assets (RSA) $ 291,364 $ 298,688 $ 625,569 $ 831,843 $ 2,047,464 Non-maturity interest-bearing deposits $ 104,379 $ 107,882 $ 286,392 $ 187,852 $ 686,505 Time Deposits 185,991 398,767 116,845 7,506 709,109 Borrowings 44,595 47,784 88,030 17,903 198,312 Total Rate Sensitive Liabilities (RSL) $ 334,965 $ 554,433 $ 491,267 $ 213,261 $ 1,593,926 Interest sensitivity gap $ (43,601) $ (255,745) $ 134,302 $ 618,582 $ 453,538 Cumulative gap (43,601) (299,346) (165,044) 453,538 RSA/RSL-cumulative 86.9 % 66.3 % 88.1 % 128.5 % As of December 31, 2022 Interest sensitivity gap $ (46,676) $ (158,452) $ 27,463 $ 647,143 $ 469,478 Cumulative gap (46,676) (205,128) (177,665) 469,478 RSA/RSL-cumulative 83.1 % 70.3 % 85.0 % 138.5 % Certain interest-bearing deposits with no stated maturity dates are included in the interest-sensitivity table above.
Added
The total available credit under all lines was $199.1 million, which consists of $32.1 million with the Federal Reserve Bank, $150.0 million with the Federal Home Loan Bank of Pittsburgh, $7.0 million with the Atlantic Community Bankers Bank, and $10.0 million with PNC Bank.
Added
As of December 31, 2023 and December 31, 2022, there was $124.2 million and $42.3 million outstanding respectively. The maximum borrowing capacity from FHLB at December 31, 2023 was $682.4 million.
Added
Outstanding Letters of Credit to secure public funds totaled $136.6 million and $92.9 million at December 31, 2023 and 2022, respectively.

Other NWFL 10-K year-over-year comparisons