10q10k10q10k.net

What changed in FVCBankcorp, Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of FVCBankcorp, Inc.'s 2023 and 2024 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 2024 report.

+356 added−396 removedSource: 10-K (2025-03-20) vs 10-K (2024-03-21)

Top changes in FVCBankcorp, Inc.'s 2024 10-K

356 paragraphs added · 396 removed · 281 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

63 edited+8 added−17 removed156 unchanged
Biggest changeHowever, we believe these large banks generally cannot provide the same level of attention and customization of services to small businesses that we seek to provide. Through correspondents, referrals to third parties with whom we have partnered, and our own capabilities, we are a full service financial provider, able to compete in substantially all areas of banking, except trust services.
Biggest changeThrough correspondents, referrals to third parties with whom we have partnered, and our own capabilities, we are a full service financial provider, able to compete in substantially all areas of banking, except trust services. Additionally, we believe we provide competitively priced products, superior customer service, flexibility, and responsiveness when compared to our larger competitors. The banking business is highly competitive.
We intend to continue expanding our market position through organic growth, through expansion of our relationships with our existing customers, acquisition of new customers and acquisition of seasoned bankers with strong customer relationships, through selective branching, and potentially opportunistic acquisitions or other strategic transactions, while increasing profitability, maintaining strong asset quality and a high level of customer service.
We intend to continue expanding our market position through organic growth, through expansion of our relationships with existing customers, acquisition of new customers and acquisition of seasoned bankers with strong customer relationships, through selective branching, and potentially opportunistic acquisitions or other strategic transactions, while increasing profitability, maintaining strong asset quality and a high level of customer service.
To the extent that economic conditions deteriorate business and individual borrowers may be less able to meet their obligations to us in full, in a timely manner, resulting in decreased earnings or losses. Economic conditions may also adversely affect the value and liquidity of property pledged as security for loans.
To the extent that economic conditions deteriorate, business and individual borrowers may be less able to meet their obligations to us in full and in a timely manner, resulting in decreased earnings or losses. Economic conditions may also adversely affect the value and liquidity of the property pledged as security for loans.
We compete as a financial intermediary with other commercial banks, savings banks, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds, financial technology companies and other financial institutions operating in the Washington and Baltimore MSAs and elsewhere. 9 Table of Contents Our market area is a highly competitive, highly branched, banking market.
We compete as a financial intermediary with other commercial banks, savings banks, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance 9 Table of Contents companies, money market mutual funds, financial technology companies and other financial institutions operating in the Washington and Baltimore MSAs and elsewhere. Our market area is a highly competitive, highly branched, banking market.
Thus, the earnings and growth of the Bank are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve, which 12 Table of Contents regulates the supply of money through various means including open market dealings in United States government securities.
Thus, the earnings and growth of the Bank are subject to the influence of economic conditions generally, both domestic and foreign, 12 Table of Contents and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve, which regulates the supply of money through various means including open market dealings in United States government securities.
We believe having such a large group of individuals actively promote the Company has and will continue to augment our ability to generate both deposits and loans through staff and management led marketing and calling campaigns.
We believe having such a large group of individuals who actively promote the Company has and will continue to augment our ability to generate both deposits and loans through staff and management led marketing and calling campaigns.
Immediately upon becoming undercapitalized, an institution shall become subject to the provisions of Section 38 of the FDIA, which (i) restrict payment of capital distributions and management fees; (ii) require that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (iii) require submission of a capital restoration plan; (iv) restrict the growth of the institution's assets; and (v) require prior approval of certain expansion proposals.
Immediately upon becoming undercapitalized, an institution will become subject to the provisions of Section 38 of the FDIA, which (i) restrict payment of capital distributions and management fees; (ii) require that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (iii) require submission of a capital restoration plan; (iv) restrict the growth of the institution's assets; and (v) require prior approval of certain expansion proposals.
The Interagency Guidance on Sound Incentive Compensation Policies, which covers all employees that have the ability to materially affect the risk profile of financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.
The Interagency Guidance on Sound Incentive Compensation Policies, which covers all employees that have the ability to materially affect the risk profile of financial institutions, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with 17 Table of Contents effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.
Our goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences.
Our goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of an economic downturn or other negative influences.
The significant presence of national and international businesses make the Washington MSA one of the most economically vibrant and diverse markets in the country. The Washington MSA is currently home to 30 Fortune 500 companies, including eight based in Fairfax County. 5 Table of Contents The Baltimore MSA also has strong economic factors which enhance our business profile.
The significant presence of national and international businesses make the Washington MSA one of the most economically vibrant and diverse markets in the country. The Washington MSA is currently home to 20 Fortune 500 companies, including eight based in Fairfax County. 5 Table of Contents The Baltimore MSA also has strong economic factors which enhance our business profile.
We believe that the Bank met all capital adequacy requirements to which it was subject as of December 31, 2023 and December 31, 2022. As discussed below, the Basel III rules also integrate the new capital requirements into the prompt corrective action provisions under Section 38 of the FDIA.
We believe that the Bank met all capital adequacy requirements to which it was subject as of December 31, 2024 and December 31, 2023. As discussed below, the Basel III rules also integrate the new capital requirements into the prompt corrective action provisions under Section 38 of the FDIA.
We also offer online banking, mobile banking and a remote deposit service, which allows clients to facilitate and expedite deposit transactions through the use of electronic devices. A sophisticated suite of treasury management products is a key feature of our client focused, relationship driven marketing.
We also offer digital banking, mobile banking and a remote deposit service, which allows clients to facilitate and expedite deposit transactions through the use of electronic devices. A sophisticated suite of treasury management products is a key feature of our client focused, relationship driven marketing.
The guidance provides that institutions that have (i) total reported loans for construction, land development, and other land which represent 100% or more of an institution's total risk-based capital; or (ii) total reported commercial real estate loans, excluding loans secured by owner-occupied commercial real estate, representing 300% or more of the institution's total risk-based capital and the institution's commercial real estate loan portfolio has increased 50% or more during the prior 36 months, are identified as having potential commercial real estate concentration risk.
The guidance provides that institutions that have (i) total 8 Table of Contents reported loans for construction, land development, and other land which represent 100% or more of an institution's total risk-based capital; or (ii) total reported commercial real estate loans, excluding loans secured by owner-occupied commercial real estate, representing 300% or more of the institution's total risk-based capital and the institution's commercial real estate loan portfolio has increased 50% or more during the prior 36 months, are identified as having potential commercial real estate concentration risk.
In making such a determination, the Federal Reserve is required to consider whether the performance of such activities can reasonably be expected to produce benefits to the public, such as 11 Table of Contents convenience, increased competition or gains in efficiency, which outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices.
In making such a determination, the Federal Reserve is required to consider whether the performance of such activities can reasonably be expected to produce benefits to the public, such as convenience, increased competition or gains in efficiency, which outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices.
Government contract loans are typically made with variable or adjustable rates. Lines of credit typically have a one year term. As with other commercial loans, guarantees are typically requir ed. Consumer Residential. We actively originate loans for residential 1-4 family trust investment purposes and HELOCs in the communities we serve in the Washington and Baltimore MSAs.
Government contract loans are typically made with variable or adjustable rates. Lines of credit typically have a one year term. As with other commercial loans, guarantees are typically required. Consumer Residential. We actively originate loans for residential 1-4 family trust investment purposes and HELOCs in the communities we serve in the Washington and Baltimore MSAs.
Federal banking regulators are required, when reviewing bank holding company acquisition and bank merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. To comply with these obligations, the Company has implemented appropriate internal practices, procedures, and controls. Office of Foreign Assets Control.
Federal banking regulators are required, when reviewing bank holding company acquisition and bank 13 Table of Contents merger applications, to take into account the effectiveness of the anti-money laundering activities of the applicants. To comply with these obligations, the Company has implemented appropriate internal practices, procedures, and controls. Office of Foreign Assets Control.
Our investment policy authorizes investment primarily in securities of the U.S. government and its agencies; mortgage backed securities and collateralized mortgage obligations issued and fully backed by U.S. government agencies, securities of 10 Table of Contents municipalities and to a lesser extent corporate bonds and other obligations, in each case meeting identified credit standards.
Our investment policy authorizes investment primarily in securities of the U.S. government and its agencies; mortgage backed securities and collateralized mortgage obligations issued and fully backed by U.S. government agencies, securities of municipalities and to a lesser extent corporate bonds and other obligations, in each case meeting identified credit standards.
Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations. Our lending activities are subject to a variety of lending limits imposed by state and federal law.
Reserves for individually assessed loans are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and individually assessed reserve allocations. Our lending activities are subject to a variety of lending limits imposed by state and federal law.
In addition, we have portfolio mortgage products that we developed for use by ACM to help diversify our total loan portfolio. Our HELOCs generally have a maximum loan to value of up to 85%, however, due to the favorable economic conditions and strong residential real estate market in these markets, actual loan to values are typically lower than the maximum.
In addition, we have portfolio mortgage products that we developed for use by ACM to help diversify our total loan portfolio. Our HELOCs generally have a maximum loan to value of up to 85%, however, due to the strong residential real estate market in these markets, actual loan to values are typically lower than the maximum.
Our sophisticated treasury management and online banking platform allows a commercial customer to view balances, initiate payments, pay bills (including positive pay), issue stop payments, reconcile accounts and set up custom alerts. Online wires, ACH (including positive authorization), remote capture, cash disbursement and cash concentration are additional payment options available to businesses.
Our sophisticated treasury management and digital banking platform allows commercial customers to view balances, initiate payments, pay bills (including positive pay), issue stop payments, reconcile accounts and set up custom alerts. Online wires, ACH (including positive authorization), remote capture, cash disbursement and cash concentration are additional payment options available to businesses.
To the extent that we make mortgage loans, we are required to comply with these rules, subject to available exceptions. 16 Table of Contents Fair and Responsible Banking. Banks and other financial institutions are subject to numerous laws and regulations intended to promote fair and responsible banking and prohibit unlawful discrimination and unfair, deceptive or abusive practices in banking.
To the extent that we make mortgage loans, we are required to comply with these rules, subject to available exceptions. Fair and Responsible Banking. Banks and other financial institutions are subject to numerous laws and regulations intended to promote fair and responsible banking and prohibit unlawful discrimination and unfair, deceptive or abusive practices in banking.
At December 31, 2023, the Company and the Bank have not been made aware of any instances of noncompliance with this guidance.
At December 31, 2024, the Company and the Bank have not been made aware of any instances of noncompliance with this guidance.
A bank holding company may, however, engage in, or acquire an interest in a company that engages in, activities which the Federal Reserve has determined by order or regulation to be so closely related to banking or managing or controlling banks as to be properly incident thereto.
A bank holding company may, however, engage in, or acquire an interest in a company that engages in, activities which the Federal Reserve has determined by order or regulation to be so closely related to banking or managing 11 Table of Contents or controlling banks as to be properly incident thereto.
Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heig htened portfolio monitoring and reporting, and strong underwriting criteria with respect to our commercial real estate portfolio.
Management has extensive experience in commercial real estate lending, and has implemented and continues to maint ain heig htened portfolio monitoring and reporting, and strong underwriting criteria with respect to our commercial real estate portfolio.
Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.
Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of digital banking, mobile banking and other technology-based products and services by us and our customers. 18 Table of Contents
The Virginia and Maryland localities within the Washington MSA in which we primarily operate have higher median household incomes than the Washington MSA as a whole and have an unemployment rate of 2.5% as of December 31, 2023 .
The Virginia and Maryland localities within the Washington MSA in which we primarily operate have higher median household incomes than the Washington MSA as a whole and have an unemployment rate of 2.8% as of December 31, 2024.
There can be no assurance that brokered deposits will be available, or if available, sufficient to support our continued growth. The unavailability of a sufficient volume of brokered deposits could have a material adverse effect on our business, financial condition and results of operations.
There can be no assurance that brokered deposits will be available, or if available, sufficient to support our continued growth. The unavailability of a sufficient volume of brokered deposits could have a material adverse effect on our business, financial condition, and results of operations. Anti-Money Laundering Laws and Regulations.
These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. 15 Table of Contents Regulatory Enforcement Authority . Federal banking law grants substantial enforcement powers to the federal banking agencies.
These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions. Regulatory Enforcement Authority . Federal banking law grants substantial enforcement powers to the federal banking agencies.
These changes may also require the Company to invest significant management attention and resources to evaluate and make necessary changes to comply with new statutory and regulatory requirements. Consumer Financial Protection Bureau ("CFPB") .
These changes may also require the Company to invest 15 Table of Contents significant management attention and resources to evaluate and make necessary changes to comply with new statutory and regulatory requirements. Consumer Financial Protection Bureau ("CFPB") .
Commercial real estate loans are structured using both variable and fixed rates and renegotiable rates which adjust in three to five years, with maturities of generally five to ten years. At December 31, 2023 , owner occupied commercial real estate loans represented 12.0% of the loan portfolio.
Commercial real estate loans are structured using both variable and fixed rates and renegotiable rates which adjust in three to five years, with maturities of generally five to ten years. At December 31, 2024, owner occupied commercial real estate loans represented 10% of the loan portfolio.
The AML laws and their regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter- 13 Table of Contents terrorism purposes.
The AML laws and their regulations also provide for information sharing, subject to conditions, between federal law enforcement agencies and financial institutions, as well as among financial institutions, for counter-terrorism purposes.
The EGRRCPA, which became effective May 24, 2018, amended the Dodd-Frank Act to provide regulatory relief for certain smaller and regional financial institutions, such as the Company and the Bank.
The Economic Growth, Regulatory Relief and Consumer Protection Act ("EGRRCPA"), which became effective May 24, 2018, amended the Dodd-Frank Act to provide regulatory relief for certain smaller and regional financial institutions, such as the Company and the Bank.
In respect of institutions with high concentrations of loans in areas deemed to be higher risk, or during periods of significant economic stress, regulators may require an institution to maintain a higher level of capital, and/or to maintain more stringent risk management measures, than those required by these regulations.
In respect of institutions with high concentrations of loans in areas deemed to be higher 14 Table of Contents risk, or during periods of significant economic stress, regulators may require an institution to maintain a higher level of capital, and/or to maintain more stringent risk management measures, than those required by these regulations. Prompt Corrective Action .
Commercial loans, for a variety of business purposes, including working capital, equipment purchases, lines of credit, and government contract financing and asset based lending and accounts receivable financing, comprise approximately 12.0% of our loan portfolio at December 31, 2023 . The warehouse facility provided to ACM is also included in this loan type.
Commercial loans, for a variety of business purposes, including working capital, equipment purchases, lines of cr edit, and government contract financing and asset based lending and accounts receivable financing, comprise approximately 18% of our loan portfolio at December 31, 2024. The warehouse facility provided to ACM is also included in this loan type.
The federal bank regulatory agencies have issued guidance governing financial institutions with concentrations in commercial real estate lending.
The federal banking agencies have issued guidance governing financial institutions with concentrations in commercial real estate lending.
We have a concentration in comme rcial real estate loans, and we have experienced significant growth in our commercial real estate portfolio in recent years. As of December 31, 2023 , commercial real estate loans as defined for regulatory purposes represented 399% of our total risk-based capital.
We have a concentration in commercial real estate loans, and we have experienced significant growth in our commercial real estate portfolio in recent years. As of December 31, 2024, commercial real estate loans as defined for regulatory purposes represented 371% of our total risk-based capital.
Of those loans, commercial construction, development and land loans represented 57% of our total risk based capital. Owner-occupied commercial real estate loans represented an additional 81% of our total risk based capital.
Of those loans, commercial construction, development and land loans represented 59% of our total risk based capital. Owner-occupied commercial real estate loans represented an additional 68% of our total risk based capital.
Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk and interest rate risk which is reflective in the yields obtained on those securities. Employees As of December 31, 2023, we had 116 full-time employees and 4 part-time employees. None of our employees are covered by a collective bargaining agreement.
Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk and interest rate risk which is reflective in the yields obtained on those securities. Employees As of December 31, 2024, we had 110 f ull-time employees and four part-time employees. None of our employees are covered by a collective bargaining agreement.
The final rule adopts a new metrics-based approach to evaluating bank retail lending and community development financing, using benchmarks based on peer and demographic data. Most of the rule’s requirements will be applicable beginning January 1, 2026. The remaining requirements, including the data reporting requirements, will be applicable on January 1, 2027. Concentration and Risk Guidance.
The final rule adopts a new metrics-based approach to evaluating bank retail lending and community development financing, using benchmarks based on peer and demographic data. Most of the rule’s requirements are effective beginning January 1, 2026. The remaining requirements, including the data reporting requirements, are effective January 1, 2027.
At December 31, 2023, non-owner occupied commercial real estate loans represented approximately 48.0% of the loan portfolio and multi-family residential real estate comprise d 10% of the portfolio. We seek to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions.
At December 31, 2024, non-owner occupied commercial real estate loans represented approximately 36% of the loan portfolio and multi-family residential real estate comprised 9% the portfolio. We seek to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions.
Advance rates will be up to 90% of prime eligible government receivables, and lower percentages depending on the nature of th e receivables. At December 31, 2023 , outstanding loans to government contractors represented 47.0% of our commercial and industrial segment. Total commitments to government contractors totaled $311.4 million at December 31, 2023.
Advance rates will be up to 90% of prime eligible government receivables, and lower percentages depending on the nature of th e receivables . At December 31, 2024, outstanding loans to government contractors represented 37% of our commercial and industrial segment. Total commitments to government contractors totaled $326.8 million at December 31, 2024.
These limits will increase or decrease in response to increases or decreases in our level of capital. At December 31, 2023 , the Bank had a legal lending limit of $39.2 million. At December 31, 2023 , our average funded loan size outstanding, for commercial real estate (including commercial construction) and commercial loans was $2.1 million and $520 thousand, respectively.
These limits will increase or decrease in response to increases or decreases in our capital levels. At December 31, 2024 , the Bank had a legal lending limit of $41.6 million . At December 31, 2024, our average funded loan size outstanding, for commercial real estate (including commercial construction) and commercial loans was $1.7 million and $622 thousand, respectively.
Commercial construction loans for the acquisition, development and construction of comme rcial real estate also comprise a significant and growing portion of the portfolio. At December 31, 2023, such loans represented 8.0% of the loan portfolio. Our t ypical commercial construction loan involves property that will ultimately be leased to a non-owner occupant.
Commercial construction loans for the acquisition, development and construction of commercial real estate also comprise a significant and growing portion of the portfolio. At December 31, 2024, such loans represented 9% of the loan portfolio. Our typical commercial construction loan involves property that will ultimately be leased to a non-owner occupant.
Investment Portfolio Our investment securities portfolio is primarily maintained as an on-balance sheet contingent source of liquidity to fund loans and meet the demands of depositors. It provides additional interest income and we seek to have limited interest rate risk and credit risk. We currently classify substantially all of our investment securities as available-for-sale.
Investment Portfolio Our investment securities portfolio is primarily maintained as an on-balance sheet contingent source of liquidity to fund loans and meet the demands of depositors, and provides additional interest income. We currently classify substantially 10 Table of Contents all of our investment securities as available-for-sale.
Our business opportunities in the future may be tempered by higher interest rates, inflation, and contractionary monetary policy. Volatility in global economic markets, continued domestic political turmoil and various episodes of geopolitical unrest continue to provide a degree of uncertainty in financial markets.
This economic improvement resulted in lower unemployment, increased consumer confidence, and increased housing development and housing prices. Our business opportunities in the future may be tempered by higher interest rates, inflation, and contractionary monetary policy. Volatility in global economic markets, continued domestic political turmoil and various episodes of geopolitical unrest continue to provide a degree of uncertainty in financial markets.
Management believes the allowance for credit losses is adequate to cover probable incurred losses in our loan portfolio as of December 31, 2023. Comprehensive risk management practices and appropriate capital levels are essential elements of a sound commercial real estate lending program.
Management believes the allowance for credit losses is adequate to cover expected losses in our loan portfolio as of December 31, 2024. Comprehensive risk management practices and appropriate capital levels are essential elements of a sound commercial real estate lending program. A concentration in commercial real estate adds a dimension of risk that compounds the risk inherent in individual loans.
As of December 31, 2023, the Washington MSA had a median household income of $111,252, which ranks as sixth highest among all MSAs nationally, and a population of 6.4 million.
As of December 31, 2024, the Washington MSA had a median household income of $129.3 thousand, which ranks as sixth highest among all MSAs nationally, and a population of 6.35 million.
The rule requires financial institutions to notify their primary federal regulator as soon as possible and no later than 36 hours after the institution determines that a cybersecurity incident has occurred that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the institution’s: (i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business, (ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value, or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States. 18 Table of Contents On July 26, 2023, the SEC issued a final rule requiring enhanced standardized disclosures regarding cybersecurity risk management, strategy, governance, and cybersecurity incident reporting by public companies, such as the Company, that are subject to the reporting requirements of the Securities Exchange Act of 1934.
The rule requires financial institutions to notify their primary federal regulator as soon as possible and no later than 36 hours after the institution determines that a cybersecurity incident has occurred that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the institution’s: (i) ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business, (ii) business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value, or (iii) operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.
CAMELS composite ratings set a maximum assessment for CAMELS 1 and 2 rated banks, and set minimum assessments for lower rated institutions. For the years ended December 31, 2023 and 2022, the Bank recorded $1.4 million and $620 thousand, respectively, for FDIC insurance premiums.
CAMELS composite ratings set a maximum assessment for CAMELS 1 and 2 rated banks, and set minimum assessments for lower rated institutions. For the years ended December 31, 2024 and 2023, the Bank reco rded $1.3 million an d $1.4 million, respectively, for FDIC insurance premiums. Limitations on Incentive Compensation.
Our loan portfolio consists primarily of commercial real estate loans, including construction and land loans, which totaled $1.31 billion and constituted 67.8% of total loans as of December 31, 2023, and commercial loans, including loans to government contractors and the ACM warehouse lending facility, which totaled $219.9 million and constituted 12.0% of total loans as of December 31, 2023.
Our loan portfolio consists primarily of commercial real estate loans, including construction and land loans, which totale d $1.20 billion and constituted 64% of to tal loans as of December 31, 2024, and commercial loans, includin g loans to government contractors and the ACM warehouse lending facility, which totaled $336.7 million and constituted 18% of total loans as of December 31, 2024.
As of June 30, 2023, t he Washington MSA had total deposits of $298.3 billion and the Baltimore MSA had total deposits of $96.5 billion, based on Federal Deposit Insurance Corporation ("FDIC") data.
As of June 30, 2024, the Washington MSA had total deposits of $291.7 billion and the Baltimore MSA had total deposits of $97.9 billion, based on Federal Deposit Insurance Corporation ("FDIC") data.
The Company has adopted a clawback policy compliant with such rule, a copy of which is attached as Exhibit 97 to this Form 10-K. Cybersecurity . In March 2015, federal regulators issued two related statements regarding cybersecurity.
The Company has adopted a clawback policy compliant with such rule. Cybersecurity . In March 2015, federal regulators issued two related statements regarding cybersecurity.
Deposit insurance pricing is a “financial ratios method” based on “CAMELS” composite ratings to determine assessment rates for small established institutions with less than $10 billion in assets.
The deposit insurance assessment base is based on average total assets minus average tangible equity, pursuant to a rule issued by the FDIC as required by the Dodd-Frank Act. Deposit insurance pricing is a “financial ratios method” based on “CAMELS” composite ratings to determine assessment rates for small established institutions with less than $10 billion in assets.
The lending activities in which we engage carry the risk that the borrowers will be unable to perform on their obligations. As such, interest rate policies of the Federal Reserve and general economic conditions, nationally and in our market areas, could have a significant impact on our results of operations.
As such, interest rate policies of the Federal Reserve and general economic conditions, nationally and in our market areas, could have a significant impact on our results of operations.
At December 31, 2023, consumer residential loans represented 19.9% of the loan portfolio. Other Loans. We occasionally originate consumer loans both on an unsecured basis and secured by non-real estate collateral. We have also purchased pools of unsecured consumer loans and student loans from a third party for yield and diversification.
We have also purchased portfolios of 1-4 family residential first mortgage loans on properties primarily located in our market area for yield and diversification. At December 31, 2024, consumer residential loans represented 17% of the loan portfolio. Other Loans. We occasionally originate consumer loans both on an unsecured basis and secured by non-real estate collateral.
Consumers generally may prevent financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that market the institutions' own products and services. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers.
Consumers generally may prevent financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that market the institutions' own products and services.
As of December 31, 2023, the Baltimore MSA had a median household income of $90,505 which represented 4.0% growth over the previous year. The Baltimore MSA has an unemployment rate of 2.0% as of December 31, 2023. With a population of 3.0 million, the top industries of the Baltimore MSA include healthcare, education, and professional, scientific and technical services.
As of December 31, 2024, the Baltimore MSA had a median household income of $98.0 thousand, which represented 4.0% growth over the previous year. The Baltimore MSA has an unemployment rate of 2.7% as of December 31, 2024.
The changes may also require us to dedicate significant management attention and resources to evaluate and make necessary changes to comply with the new statutory and regulatory requirements. Mortgage Banking Regulation .
The changes may also require us to dedicate significant management attention and resources to evaluate and make necessary changes to comply with the new statutory and regulatory requirements. In February 2025, the Trump administration halted the CFPB’s operations, and its employees were instructed to cease all supervision and examination activity.
We provide HELOCs a s a service to our customers and when we receive referrals from various mortgage brokers within our market area. As of December 31, 2023 , HELOCs comprise 1.7% of total loans. Loans originated for residential 1-4 family trust investment purposes comprise 4.3% of total loans as of December 31, 2023 .
We provide HELOCs as a service to our customers and when we receive referrals from various mortgage brokers within our market area. As of December 31, 2024, HELOCs comprise 2% of total loans. While we do not typically originate residential first mortgages, we will occasionally originate a mortgage loan meeting our investment preferences presented by a mortgage broker.
As of June 30, 2023, there were approximately $298.3 billion in total deposits shared between banking institutions located in the Washington MSA, according to the FDIC. As of the aforementioned date, our deposit market share was approximately 0.60% in the Washington MSA.
In the Baltimore MSA, there were approximately $97.9 billion in total deposits shared between banking institutions as of June 30, 2024, and when excluding deposits held by the above named larger institutions, our deposit market share was approximately 0.09%.
Our strategic goal is to increase our market share through selective new branch additions, opportunistic acquisitions, and acquisitions of customers from larger competitors. PNC Bank, Capital One, Wells Fargo Bank, Truist Bank, and Bank of America Corporation hold the primary market shares.
Our strategic goal is to increase our market share through selective new branch additions, opportunistic acquisitions, and acquisitions of customers from larger competitors. We believe these larger competitors generally cannot provide the same level of attention and customization of services to small businesses that we seek to provide.
The local economies in which we operate that began to strengthen and improve during 2022 post pandemic, showed continued improvement in economic and commercial activity during 2023. This economic improvement resulted in lower unemployment, increased consumer confidence, and increased housing development and housing prices.
With a population of 2.9 million, the top industries of the Baltimore MSA include healthcare, education, and professional, scientific and technical services.The Baltimore MSA is currently home to four Fortune 500 companies. The local economies in which we operate that began to strengthen and improve during 2022 post pandemic, showed continued improvement in economic and commercial activity during 2024.
A concentration in commercial real estate adds a dimension of risk that compounds the risk inherent in individual loans. The federal banking agencies have issued guidance governing financial 8 Table of Contents institutions with concentrations in commercial real estate lending.
The final rule has been subject to an injunction since March 29, 2024, and the effective dates will be extended pending resolution of the lawsuit. Concentration and Risk Guidance. The federal bank regulatory agencies have issued guidance governing financial institutions with concentrations in commercial real estate lending.
Removed
While we do not typically originate residential first mortgages, we will occasionally originate a mortgage loan meeting our investment preferences presented by a mortgage broker. We have also purchased portfolios of 1-4 family residential first mortgage loans on properties primarily located in our market area for yield and diversification.
Added
We have also purchased pools of unsecured consumer loans and student loans from a third party for yield and diversification. The lending activities in which we engage carry the risk that the borrowers will be unable to perform on their obligations.
Removed
Additionally, we believe we provide competitively priced products, superior customer service, flexibility and responsiveness when compared to our larger competitors. The banking business is highly competitive.
Added
As of June 30, 2024, there were approximate ly $291.7 billion in total deposits shared between banking institutions located in the Washington MSA, according to the FDIC. PNC Bank, Capital One, Wells Fargo Bank, Truist Bank, and Bank of America Corporation hold the primary market shares.
Removed
The FDIC has proposed to adopt regulations that are intended to expand the ability of institutions to accept brokered deposits by, among other things, simplifying the process by which institutions and deposit brokers may obtain exemptions from the restriction or conditions on the acceptance of brokered deposits. Anti-Money Laundering Laws and Regulations.
Added
When excluding the deposits held by these institutions, as of the aforementioned date, our deposit market share was approximately 2.2% in the Washington MSA.
Removed
The Economic Growth, Regulatory Relief and Consumer Protection Act ("EGRRCPA") also directed the federal banking agencies to develop a "Community Bank Leverage Ratio" ("CBLR"), calculated by dividing tangible equity capital by average consolidated total assets. In October 2019, the federal banking agencies adopted a CBLR of 9%.
Added
As a result, the future of the CFPB and its impact on our business are uncertain. Mortgage Banking Regulation .
Removed
If a "qualified community bank," generally a depository institution or depository institution holding company with consolidated assets of less than $10 billion, has a leverage ratio which exceeds the CBLR, then such institution is considered to have met all generally applicable leverage and risk based capital requirements, the capital ratio requirements for "well capitalized" status under Section 38 of the FDIA, and any other leverage or capital requirements to which it is subject.
Added
Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers. 16 Table of Contents In October 2024, the CFPB issued a final rule regarding personal financial data rights that is designed to promote “open banking.” The final rule requires, among other things, that data providers, including any financial institution, make available to consumers and certain authorized third parties, upon request, certain covered transaction, account, and payment information.
Removed
An institution or holding company may be excluded from qualifying community bank status based on its risk profile, including consideration of its off-balance sheet exposures; trading assets and liabilities; total notional derivatives exposures; and such other facts as the appropriate federal banking agencies determine to be appropriate. We adopted this simplified capital regime on January 1, 2020.
Added
Institutions with at least $1.5 billion but less than $3 billion in total assets, including the Company, are required to comply with the final rule by April 1, 2029. On the same day the final rule was released, certain industry participants filed a complaint against the CFPB challenging the final rule.
Removed
Effective September 30, 2022, we opted out of the CBLR framework. A banking organization 14 Table of Contents that opts out of the CBLR framework can subsequently opt back into the CBLR framework if it meets the criteria listed above.
Added
This legal challenge has since been paused to allow time for the CFPB to assess the rule and determine whether it aligns with the agency’s current policy objectives. Community Reinvestment Act ("CRA").
Removed
In 2016, the FASB issued the current expected credit losses ("CECL") model, which became applicable to us on January 1, 2023.
Added
On July 26, 2023, the SEC issued a final rule requiring enhanced standardized disclosures regarding cybersecurity risk management, strategy, governance, and cybersecurity incident reporting by public companies, such as the Company, that are subject to the reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act").
Removed
CECL requires financial institutions to estimate and establish a provision for credit losses over the lifetime of the asset, at the origination or the date of acquisition of the asset, as opposed to reserving for incurred or probable losses through the balance sheet date.

… 8 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

63 edited+28 added−24 removed130 unchanged
Biggest changeRisks Related to Our Securities We may need to raise additional capital in the future, and we may not be able to do so. Access to sufficient capital is critical in order to enable us to implement our business plan, support our business, expand our operations and meet applicable capital requirements.
Biggest changeNew government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Risks Related to Our Securities We may need to raise additional capital in the future, and we may not be able to do so.
Further, despite our underwriting criteria and historical experience, we may be particularly susceptible to losses due to: (i) the geographic concentration of our loans, (ii) the concentration of higher risk loans, such as commercial real estate, and commercial and industrial loans, and (iii) the relative lack of seasoning of certain of our loans.
Further, despite our underwriting criteria and historical experience, we may be particularly susceptible to losses due to: (i) the geographic concentration of our loans, (ii) the concentration of higher risk loans, such as commercial real estate, and commercial and industrial loans, and (iii) the relative lack of seasoning of certain loans.
Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control. Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our business, financial conditions and results of operations. We are subject to interest rate risk, which could adversely affect our profitability.
Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control. Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our business, financial condition and results of operations. We are subject to interest rate risk, which could adversely affect our profitability.
Additionally, temporary layoffs, salary reductions or furloughs of government employees or government contractors could have adverse impacts on other businesses in our market and the general economy of the Washington, D.C. metropolitan area, and may indirectly lead to a loss of revenues by our customers.
Additionally, layoffs, salary reductions or furloughs of government employees or government contractors could have adverse impacts on other businesses in our market and the general economy of the Washington, D.C. metropolitan area, and may indirectly lead to a loss of revenues by our customers.
We expect that competition for experienced loan and deposit officers will continue to be intense and that there will be a limited number of qualified loan officers with knowledge of, and experience in, the community banking industry in our market area.
We expect that competition for experienced loan and deposit officers will continue to be intense and that there will be a limited number of qualified bankers with knowledge of, and experience in, the community banking industry in our market area.
In addition, foreign economic and political conditions could affect the stability of global financial markets, which could hinder economic growth. The current economic environment is characterized by rising interest rates as a result of contractionary monetary policy which could impact our ability to attract deposits and to generate attractive earnings through our loan and investment portfolios.
In addition, foreign economic and political conditions could affect the stability of global financial markets, which could hinder economic growth. The current economic environment is characterized by higher interest rates as a result of contractionary monetary policy which could impact our ability to attract deposits and to generate attractive earnings through our loan and investment portfolios.
Our deposits are subject to potentially dramatic fluctuations in availability or price due to certain factors outside of our control, such as increasing competitive pressures for deposits, changes in interest rates and returns on other investment classes, customer perceptions of our financial health and general reputation and adverse developments in general economic conditions of an individual's business, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits.
Our deposits are subject to potentially 20 Table of Contents dramatic fluctuations in availability or price due to certain factors outside of our control, such as increasing competitive pressures for deposits, changes in interest rates and returns on other investment classes, customer perceptions of our financial health, and general reputation and adverse developments in general economic conditions of an individual's business, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits.
While we believe that our loan portfolio is well diversified in terms of borrowers and industries, these concentrations expose us to the risk that adverse developments in the real estate market, or in the general economic conditions in the Washington, D.C. metropolitan area, could increase the levels of nonperforming loans and charge-offs, and reduce loan demand.
While we believe that our loan portfolio is well diversified in terms of borrowers and industries, these concentrations expose us to the risk that adverse developments in the real estate market, or in the general economic conditions in the Washington, D.C. and Baltimore metropolitan areas, could increase the levels of nonperforming loans and charge-offs, and reduce loan demand.
Additionally, significant unrealized losses could negatively 21 Table of Contents impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits. Credit Risks We are subject to credit risk, which could adversely affect our profitability.
Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits. Credit Risks We are subject to credit risk, which could adversely affect our profitability.
It is possible that the integration process could result in the loss of key employees, the disruption of each company's ongoing business, diversion of 26 Table of Contents management attention, or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients and employees or to achieve the anticipated benefits of the merger.
It is possible that the integration process could result in the loss of key employees, the disruption of each company's ongoing business, diversion of management attention, or inconsistencies in standards, controls, procedures, and policies that adversely affect our ability to maintain relationships with clients and employees or to achieve the anticipated benefits of the merger.
As of December 31, 2023, approximately 31.1% of our deposits were uninsured when excluding collateralized deposits, and we rely on these deposits for liquidity.Any such loss of funds could result in lower loan originations and decrease in liquidity, which could have a material adverse effect on our business, financial condition and results of operations.
As of December 31, 2024, approximately 31% of our deposits were uninsured when excluding collateralized deposits, and we rely on these deposits for liquidity. Any such loss of funds could result in lower loan originations and decrease in liquidity, which could have a material adverse effect on our business, financial condition and results of operations.
Our failure to sustain our historical rate of growth or adequately manage the factors that have contributed to our growth could have a material adverse effect on our earnings and profitability and therefore on our business, financial condition and results of operations. We may face risks with respect to future expansion or acquisition activity.
Our failure to sustain our historical rate of growth or adequately manage the factors that have contributed to our growth could have a material adverse effect on our earnings and profitability and therefore on our business, financial condition, and results of operations. 25 Table of Contents We may face risks with respect to future expansion or acquisition activity.
Other changes to statutes, regulations, or regulatory policies, or 30 Table of Contents supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect us in substantial and unpredictable ways. Such additional regulation and supervision has increased, and may continue to increase, our costs and limit our ability to pursue business opportunities.
Other changes to statutes, regulations, or regulatory policies, or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, could affect us in substantial and unpredictable ways. Such additional regulation and supervision has increased, and may continue to increase, our costs and limit our ability to pursue business opportunities.
Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. We face increasing regulation and supervision of our industry. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes.
Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations often impose additional compliance costs. 29 Table of Contents We face increasing regulation and supervision of our industry. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes.
Our inability to overcome these risks could have an adverse effect on our ability to implement our business strategy and enhance shareholder value, which, in turn, could have a material adverse effect on our business, financial condition or results of operations. Additionally, at December 31, 2023, we had $7.2 million o f goodwill related to our acquisition of Colombo.
Our inability to overcome these risks could have an adverse effect on our ability to implement our business strategy and enhance shareholder value, which, in turn, could have a material adverse effect on our business, financial condition, or results of operations. Additionally, at December 31, 2024, we had $7.2 million of goodwill related to our acquisition of Colombo.
Although we endeavor to maintain our allowance for credit losses at a level adequate to absorb any losses in the loan portfolio, the determination of the appropriate level of the allowance for credit losses is inherently highly subjective 24 Table of Contents and requires us to make significant estimates of and assumptions regarding current credit risk and future trends, and the accuracy of our judgments depends on the outcome of future events.
Although we endeavor to maintain our allowance for credit losses at a level adequate to absorb expected losses in the loan portfolio, the determination of the appropriate level of the allowance for credit losses is inherently highly subjective and requires us to make significant estimates of and assumptions regarding current credit risk and future trends, and the accuracy of our judgments depends on the outcome of future events.
Additionally, the resolution of nonperforming assets and other problem assets requires the active involvement of management, which can distract management from its overall supervision of operations and other income producing activities. As of December 31, 2023, we had no OREO. 22 Table of Contents Our concentrations of loans may create a greater risk of loan defaults and losses.
Additionally, the resolution of nonperforming assets and other problem assets requires the active involvement of management, which can distract management from its overall supervision of operations and other income producing activities. As of December 31, 2024, we had no OREO. Our concentrations of loans may create a greater risk of loan defaults and losses.
We have a concentration in commercial real estate loans, and we have experienced significant growth in our commercial real estate portfolio in recent years. As of December 31, 2023, commercial real estate loans, as defined for regulatory purposes, represented 399% of our total risk-based capital.
We have a concentration in commercial real estate loans, and we have experienced significant growth in our commercial real estate portfolio in recent years. As of December 31, 2024, commercial real estate loans, as defined for regulatory purposes, represented 371% of our total risk-based capital.
Because our information technology and telecommunications systems interface with and depend on third party systems, we could experience service denials if demand for such services exceeds capacity or such third party systems fail or experience interruptions.
Because our 26 Table of Contents information technology and telecommunications systems interface with and depend on third party systems, we could experience service denials if demand for such services exceeds capacity or such third party systems fail or experience interruptions.
The loss of any of our management team or our key employees could materially adversely affect our ability to execute our business strategy, and we may not be able to find adequate replacements on a timely basis, or at all.
Our success depends, in large part, on our management team and key employees. The loss of any of our management team or our key employees could materially adversely affect our ability to execute our business strategy, and we may not be able to find adequate replacements on a timely basis, or at all.
As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition and results of operations. A substantial portion of our loans are and will continue to be real estate related loans in the Washington, D.C. metropolitan area.
As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition and results of operations. 21 Table of Contents A substantial portion of our loans are and will continue to be real estate related loans in the Washington, D.C. and Baltimore metropolitan areas.
Operational Risks 27 Table of Contents We depend on information technology and telecommunications systems of third parties, and any systems failures or interruptions could adversely affect our operations and financial condition. Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems.
Operational Risks We depend on information technology and telecommunications systems of third parties, and any systems failures, interruptions, or breaches of security could adversely affect our operations and financial condition. Our business depends on the successful and uninterrupted functioning of our information technology and telecommunications systems.
This concentration exposes us to the risk that adverse developments in the real estate market, or the general economic conditions in our market, could increase our nonperforming loans and charge-offs, reduce the value of our collateral and adversely impact our results of operations and financial condition.
These concentrations expose us to the risk that adverse developments in the real estate market, or the general economic conditions in our market, could increase our nonperforming loans and charge-offs, reduce the value of our collateral and adversely impact our results of operations and financial condition.
Of those loans, commercial construction, development and land loans represented 57% of our total risk based capital. Owner-occupied commercial real estate loans represented an additional 81% of our total risk based capital.
Of those loans, commercial construction, development and land loans represented 59% of our total risk based capital. Owner-occupied commercial real estate loans represented an additional 68% of our total risk based capital.
If we need to make significant and unanticipated increases in the loss allowance in the future, or take additional charge-offs for which we have not established adequate reserves, our results of operations and financial condition could be materially adversely affected at that time. Lack of seasoning of our loan portfolio could increase risk of credit defaults in the future.
If we need to make significant and unanticipated increases in the loss allowance in the future, or take additional charge-offs for which we have not established adequate reserves, our results of operations and financial condition could be materially adversely affected at that time.
General Risks Severe weather, natural disasters, geopolitical conditions, acts of war or terrorism, public health issues, and other external events could significantly impact our business. Severe weather, natural disasters, geopolitical conditions, acts of war or terrorism, public health issues, and other adverse external events could have a significant impact on our ability to conduct business.
Severe weather, natural disasters, geopolitical conditions, trade restrictions and tariffs, acts of war or terrorism, public health issues, and other adverse external events could have a significant impact on our ability to conduct business.
A substantial portion of our loans are secured by various types of real estate in the Washington, D.C. metropolitan area and substantially all of our loans are to borrowers in that area.
A substantial portion of our loans are secured by various types of real estate in the Washington, D.C. and Baltimore metropolitan areas and substantially all of our loans are to borrowers in those areas.
These concentrations expose us to the risk that adverse developments in the real estate market, or in the general economic conditions in such areas, or the continuation of such adverse developments, could increase the levels of nonperforming loans and charge-offs, and reduce loan demand and deposit growth. In that event, we would likely experience lower earnings or losses.
These concentrations expose us to the risk that adverse developments in the real estate market, or in the general economic conditions in such areas, or the continuation of such adverse developments, could increase the levels of nonperforming loans and charge-offs, and reduce loan demand and deposit growth.
Increases to our nonperforming assets or other problem assets will have an adverse effect on our earnings. As of December 31, 2023, we had nonperforming loans and loans 90 days or more past due of $1.8 million, or 0.10% of total loans, net of deferred fees.
Increases to our nonperforming assets or other problem assets will have an adverse effect on our earnings. As of December 31, 2024, we had nonperforming loans and loans 90 days or more past due of $12.9 million, or 0.69% of total loans, net of deferred fees.
Our profitability depends upon our continued ability to successfully compete with traditional and new financial services providers, some of which maintain a physical presence in our market areas and others of which maintain only a virtual presence. Our primary market area is a highly competitive, highly branched, banking market.
Our profitability depends upon our continued ability to successfully compete with traditional and new financial services providers, some of which maintain a physical presence in our market areas and others of which maintain only a virtual presence.
Many of our commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.
Our portfolio of loans to small and mid-sized community-based businesses may increase our credit risk. Many of our commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.
We compete as a financial intermediary with other commercial banks, savings banks, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Washington, D.C. metropolitan area and elsewhere, as well as nontraditional competitors such as fintech companies and internet-based lenders, depositories and payment systems.
We compete for loans and deposits with other commercial banks, savings banks, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Washington, D.C. and Baltimore metropolitan areas and elsewhere, as well as nontraditional competitors such as fintech companies and internet-based 24 Table of Contents lenders, depositories and payment systems.
In the event of a government shutdown, this could cause these customers to have their government contracts reduced or terminated for convenience, or have payments delayed, causing a loss of anticipated revenues or reduced cash flow, resulting in an increase in credit risk, and potentially defaults by such customers on their respective loans.
In the event of significant reductions in spending and/or a government shutdown, these customers may have their government contracts reduced or terminated, or have payments delayed, causing a loss of anticipated revenues or reduced cash flow, resulting in an increase in credit risk, and potentially defaults by such customers on their respective loans.
As of December 31, 2023, we had $1.85 billion in deposits and approximately 9% of our deposits are derived from one customer relationship.
As of December 31, 2024, we had $1.87 billion in deposits and approximately 8% of our deposits are derived from one customer relationship.
As a result, a government shutdown could lead to an increase in the levels of past due loans, nonperforming loans, loan loss reserves and charge-offs, and a decline in liquidity. We have extended off-balance sheet commitments to borrowers which expose us to credit and interest rate risk.
As a 23 Table of Contents result, significant reductions in spending and/or a government shutdown could lead to an increase in the levels of past due loans, nonperforming loans, allowance for credit losses and charge-offs, and a decline in liquidity. We have extended off-balance sheet commitments to borrowers which expose us to credit and interest rate risk.
The occurrence of any such event in the future could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations. Item 1B. Unresolved Staff Comments None. 31 Table of Contents
The occurrence of any such event in the future could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.
Nevertheless, we could be required to maintain higher levels of capital as a result of our commercial real estate concentration, which could limit our growth, require us to obtain additional capital, and have a material adverse effect on our business, financial condition and results of operations. 23 Table of Contents Our portfolio of loans to small and mid-sized community-based businesses may increase our credit risk.
Nevertheless, we could be required to maintain higher levels of capital as a result of our commercial real estate concentration, which could limit our growth, require us to obtain additional capital, and have a material adverse effect on our business, financial condition and results of operations.
At December 31, 2023, 87.7% o f our total loans were secured by real estate; commercial real estate loans, excluding construction and land development, comprised the largest portion of these loans at 59.7 % of our portfolio.
At December 31, 2024, 83% of our total loans were secured by real estate; commercial real estate loans, excluding construction and land development, comprised the largest portion of these loans at 56% of our portfolio. Construction and land development loans comprised 9% of total loans at December 31, 2024.
Furthermore, our clients are also affected by inflation and the rising costs of products and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.
We may find that we need to give higher than normal raises to employees and start new employees at a higher wage. Furthermore, our clients are also affected by inflation and the rising costs of products and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.
Any substantial, unexpected, and/or prolonged change in the level or cost of liquidity could impair our ability to fund operations and meet our obligations as they become due and could have a material adverse effect on our business, financial condition and results of operations. 20 Table of Contents We rely on customer deposits, including brokered deposits, and to a lesser extent on advances from the FHLB and federal funds purchased to fund our operations.
Any substantial, unexpected, and/or prolonged change in the level or cost of liquidity could impair our ability to fund operations and meet our obligations as they become due and could have a material adverse effect on our business, financial condition and results of operations.
In addition, failure of third parties to comply with applicable laws and regulations, or fraud or misconduct on the part of employees of any of these third parties, could disrupt our operations or adversely affect our reputation.
In addition, failure of third parties to comply with applicable laws and regulations, or fraud or misconduct on the part of employees of any of these third parties, could disrupt our operations or adversely affect our reputation. In addition, we provide our customers the ability to bank remotely, including online over the internet and through mobile banking applications.
Our failure to compete effectively in our market 25 Table of Contents could restrain our growth or cause us to lose market share, which could have a material adverse effect on our business, financial condition and results of operations.
Our failure to compete effectively in our market could restrain our growth or cause us to lose market share, which could have a material adverse effect on our business, financial condition, and results of operations. The success of our growth strategy depends, in part, on our ability to identify and retain individuals with experience and relationships in our market.
Further, any settlement, consent order, other enforcement agreement or adverse judgment in connection with any formal or informal proceeding or investigation by government agencies may result in litigation, investigations or proceedings as other litigants and government agencies begin independent reviews of the same activities.
Further, any settlement, consent order, other enforcement agreement or adverse judgment in connection with any formal or informal proceeding or investigation by government agencies may result in litigation, investigations or proceedings as other litigants and government agencies begin independent reviews of the same activities. 28 Table of Contents As a result, the outcome of legal and regulatory actions could have a material adverse effect on our business, financial condition and results of operations.
Additionally, a shrinking yield premium between short-term and long-term market interest rates, a pattern usually indicative of investors' waning expectations of future growth and inflation, commonly referred to as a flattening of the yield curve, typically reduces our profit margin as we borrow at shorter terms than the terms at which we lend and invest.
Additionally, a shrinking yield premium between short-term and long-term market interest rates, a pattern usually indicative of investors' waning expectations of future growth and inflation, commonly referred to as a flattening of the yield curve, typically reduces our profit margin as we borrow at shorter terms than the terms at which we lend and invest. 19 Table of Contents In addition, an increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations.
During 2023, we rebalanced our investment securities portfolio by selling $102.5 million in book value available-for-sale securities with a weighted average rate of 1.54%, resulting in realized losses of $15.6 million, which are expected to be earned back over approximately 3 years. The net proceeds of the rebalancing were used to pay down FHLB advances and fund newly originated loans.
However, such unrealized losses do not affect our regulatory capital ratios. During 2023, we rebalanced our investment securities portfolio by selling $102.5 million in book value available-for-sale securities with a weighted average rate of 1.54%, resulting in realized losses of $15.6 million, which are expected to be earned back over approximately 3 years.
The deterioration of our borrowers' businesses may hinder their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations. Our government contractor customers, and businesses in the Washington, D.C. metropolitan area in general, may be adversely impacted by the federal government and a budget impasse.
The deterioration of our borrowers' businesses may hinder their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations.
Because the loan portfolio contains a significant number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming assets. Some segments have shown some signs of weakness as rising expenses and debt costs and lower valuations have impacted credit quality metrics.
Because the loan portfolio contains a significant number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming assets.
The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.
Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements than we have.
Unrealized losses related to available for sale securities are reflected in accumulated other comprehensive income in our consolidated statements of condition and reduce the level of our book capital and tangible common equity. However, such unrealized losses do not affect our regulatory capital ratios.
Unrealized losses in our securities portfolio could affect liquidity. As market interest rates increased in 2022 and 2023, we experienced significant unrealized losses on our available-for-sale securities portfolio. Unrealized losses related to available-for-sale securities are reflected in accumulated other comprehensive income in our consolidated statements of condition and reduce the level of our book capital and tangible common equity.
Many of our competitors have substantially greater resources to invest in technological improvements than we have. We may not be able to implement new technology 28 Table of Contents driven products and services effectively or be successful in marketing these products and services to our customers.
We may not be able to implement new technology driven products and services effectively or be successful in marketing these products and services to our customers.
At December 31, 2023, 11.8% of our total loans were outstanding to commercial and industrial customers. Of that, approximately 47.9% of outstanding commercial and industrial loans are to government contractors or their subcontractors specializing in the defense and homeland security and defense readiness sectors, and we have commitments of $311.4 million to such borrowers.
Of that, approximately 37% of outstanding commercial and industrial loans are to government contractors or their subcontractors specializing in the defense and homeland security and defense readiness sectors, and we have commitments of $326.8 million to such borrowers. We are actively seeking to expand our exposure to this business segment.
Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and investment securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowings. 19 Table of Contents Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.
Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and investment securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowings.
As market interest rates rise, the value of our investment securities generally decreases, although this effect can be less pronounced for floating rate instruments. Higher interest rates reduce the demand for loans and increase the attractiveness of alternative investment and savings products, like U.S. Treasury securities and money market funds, which can make it difficult to attract and retain deposits.
Higher interest rates reduce the demand for loans and increase the attractiveness of alternative investment and savings products, like U.S. Treasury securities and money market funds, which can make it difficult to attract and retain deposits. Additionally, inflation generally increases the cost of products and services we use in our business operations, as well as labor costs.
Vacancy rates have risen in the office sector, which is experiencing significant structural shifts that could take several years to fully materialize as remote work practices normalize.
Some segments have shown some signs of weakness as rising expenses and debt costs and lower valuations have impacted 22 Table of Contents credit quality metrics. Vacancy rates have risen in the office sector, which is experiencing significant structural shifts that could take several years to fully materialize as remote work practices normalize.
The inability to have sufficient capital, whether internally generated through earnings or raised in the capital markets, could adversely impact our ability to support and to grow our operations. If we grow our operations faster than we generate capital internally, we will need to access the capital markets.
Access to sufficient capital is critical in order to enable us to implement our business plan, support our business, expand our operations and meet applicable capital requirements. The inability to have sufficient capital, whether internally generated through earnings or raised in the capital markets, could adversely impact our ability to support and to grow our operations.
We actively monitor our available-for-sale securities portfolio and we do not currently anticipate the need to realize material losses from the sale of securities for liquidity purposes. Furthermore, we believe it is unlikely that we would be required to sell any such securities before recovery of their amortized cost basis, which may be at maturity.
Furthermore, we believe it is unlikely that we would be required to sell any such securities before recovery of their amortized cost basis, which may be at maturity.
We may not be able to raise additional capital in the form of additional debt or equity on acceptable terms, or at all. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, our financial condition and our results of operations.
If we grow our operations faster than we generate capital internally, we will need to access the capital markets. We may not be able to raise additional capital in the form of additional debt or equity on acceptable terms, or at all.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Increased ESG related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price.
Management believes that the commercial real estate concentration risk is mitigated by diversification among the types and characteristics of real estate collateral properties, sound underwriting practices, rigorous portfolio monitoring and ongoing market analysis. Construction and land development loans comprised 8.1% of total loans at December 31, 2023.
Management believes that the commercial real estate concentration risk is mitigated by diversification among the types and characteristics of real estate collateral properties, sound underwriting practices, rigorous portfolio monitoring and ongoing market analysis. These categories of loans have historically carried a higher risk of default than other types of loans, such as single family residential mortgage loans.
Economic conditions and a loss of confidence in financial institutions may increase our cost of capital and limit access to some sources of capital.
Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, our financial condition and our results of operations. Economic conditions and a loss of confidence in financial institutions may increase our cost of capital and limit access to some sources of capital.
Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and social justice issues. Increased ESG related compliance costs could result in increases to our overall operational costs.
In March 2024, the SEC adopted rules requiring public companies, such as the Company, to provide climate-related disclosures in their annual reports and registration statements. Investor advocacy groups, investment funds and influential investors may also focus on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and social justice issues.
As a result, the outcome of legal and regulatory actions could have a material adverse effect on our business, financial condition and results of operations. 29 Table of Contents Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (“ESG”) practices may impose additional costs on us or expose us to new or additional risks.
Scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (“ESG”) practices may impose additional costs on us or expose us to new or additional risks. We face scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosure.
Regulatory requirements affecting our loans secured by commercial real estate could limit our ability to leverage our capital and adversely affect our growth and profitability. The federal banking agencies have issued guidance governing financial institutions that have concentrations in commercial real estate lending.
The federal banking agencies have issued guidance governing financial institutions that have concentrations in commercial real estate lending.
Removed
In addition, an increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations.
Added
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve.
Removed
Market interest rates increased in response to the Federal Reserve's actions. Inflation generally increases the cost of products and services we use in our business operations, as well as labor costs. We may find that we need to give higher than normal raises to employees and start new employees at a higher wage.
Added
During 2024, the federal funds target rate reduced 100 basis points, but remained at an elevated level of 4.25 - 4.50%. Higher market interest rates have increased funding costs and decreased loan demand. As market interest rates rise, the value of our investment securities generally decreases, although this effect can be less pronounced for floating rate instruments.
Removed
Further rate hikes would continue to increase the cost of business investment and consumer goods, which would place downward pressure on demand and cause declines in cash flow and profitability, further impacting the ability of borrowers to repay their loans.
Added
If inflationary pressures do not subside, sustained higher interest rates by the Federal Reserve may be needed, which could weaken economic activity.
Removed
Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system. The closures of Silicon Valley Bank and Signature Bank in March 2023, and First Republic Bank in May 2023, and concerns about similar future events, have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks.
Added
A deterioration in economic conditions in the United States and our markets could result in a further increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition, and results of operations.
Removed
More recently, concerns about commercial real estate concentrations at regional and community banks have exacerbated this volatility. These market developments have negatively impacted customer confidence in the safety and soundness of regional and community banks.
Added
We rely on customer deposits, including brokered deposits, and to a lesser extent FHLB advances to fund our operations.
Removed
As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.
Added
The net proceeds of the rebalancing were used to pay down FHLB advances and fund newly originated loans. We actively monitor our available-for-sale securities portfolio and we do not currently anticipate the need to realize material losses from the sale of securities for liquidity purposes.
Removed
While federal bank regulators took action to ensure that depositors of the failed banks had access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional and community banks and the banking system more broadly.
Added
Actual and proposed spending cuts by the U.S. government, particularly those resulting in job losses in and around the Washington, D.C. metropolitan area, could have a negative impact on the markets we serve, which could adversely affect our business, financial condition, and results of operations.
Removed
Furthermore, there is no guarantee that regional bank failures or bank runs similar to the ones that occurred in 2023 will not occur in the future and, if they were to occur, they may have a material and adverse impact on customer and investor confidence in regional and community banks, negatively impacting the Company’s liquidity, capital, results of operations and stock price.
Added
To the extent that borrowers have more than one commercial real estate loan outstanding, an adverse development with respect to one loan or one credit relationship could expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential real estate loan.
Removed
Unrealized losses in our securities portfolio could affect liquidity. As market interest rates have increased, we have experienced significant unrealized losses on our available for sale securities portfolio.

… 35 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

11 edited+1 added−1 removed9 unchanged
Biggest changeAll employees receive semi-annual training covering social engineering, phishing and current scam events, followed by periodic testing. Our cybersecurity risk management processes are integrated into our overall risk management system through our risk management committee structure. These committees have processes to help facilitate appropriate and effective oversight of cybersecurity risk, including tracking and reporting of cybersecurity risks and remediation plans.
Biggest changeAll employees receive three training sessions annually covering social engineering, phishing and current scam events, followed by periodic testing. Our cybersecurity risk management processes are integrated into our overall risk management system through our risk management committee structure.
Examples of cyber threat intelligence sources include the Financial Services Information Sharing and Analysis Center, trade organizations, the Cybersecurity and Infrastructure Security Agency, security service providers, vendor alerts, and open-source intelligence sources. The Bank utilizes two cybersecurity tools to detect and prevent successful phishing campaigns.
Examples of cyber threat intelligence sources include the Financial Services Information Sharing and Analysis Center, trade organizations, the Cybersecurity and Infrastructure Security Agency, security service providers, vendor alerts, and open-source intelligence sources. The Bank utilizes cybersecurity tools to detect and prevent successful phishing campaigns.
Our Information Security Officer regularly reports to the Board of Directors on security matters, our Risk Management Committee establishes and reviews key cyber risk indicators and performance metrics, and our Technology Committee assesses and disseminates periodic updates on information security risk, the maturity of our information security program, and related investments and results.
Our Chief Technology & Information Security Officer regularly reports to the Board of Directors on security matters, our Risk Management Committee establishes and reviews key cyber risk indicators and performance metrics, and our Technology Committee assesses and disseminates periodic updates on information security risk, the maturity of our information security program, and related investments and results.
Management assesses and manages material risks from cybersecurity threats through designated management positions and committees that are responsible for overseeing technology and information security. Our Information Security Officer is responsible for information security and cybersecurity risk management.
Management assesses and manages material risks from cybersecurity threats through designated management positions and committees that are responsible for overseeing technology and information security. Our Chief Technology & Information Security Officer is responsible for information security and cybersecurity risk management.
The Information Security Officer reports the cyber security status of the Bank to our Board of Directors on a monthly basis. These reports include performance metrics, security events, penetration testing, training, audit results, new system and vulnerability assessments and the identification and remediation of cybersecurity risks.
The Chief Technology & Information Security Officer reports the cyber security status of the Bank to our Board of Directors on a monthly basis. These reports include performance metrics, security events, penetration testing, training, audit results, new system and vulnerability assessments and the identification and remediation of cybersecurity risks.
On an annual basis, the Board of Directors reviews and approves our information security program and information security policy. We use the Federal Financial Institutions Examination Council’s Cybersecurity Assessment Tool to help us identify our cybersecurity risks and determine our cybersecurity preparedness.
On an annual basis, the Board of Directors reviews and approves our information security program and information security policy. We currently use the Federal Financial Institutions Examination Council’s Cybersecurity Assessment Tool ("FFIEC CAT") to help us identify our cybersecurity risks and determine our cybersecurity preparedness.
Internal audits, regulatory examinations and third-party assessments of our processes in information technology and information security also help us assess our cybersecurity preparedness and whether risk management practices and controls need adjustment. Risk issues are identified through assessments, audits, examinations and security testing.
Internal audits, regulatory examinations and third-party assessments of our processes in information technology and information security also help us assess our cybersecurity preparedness and whether risk management practices and controls need adjustment. Risk issues are identified through assessments, audits, 31 Table of Contents examinations and security testing.
The Technology Committee is chaired by our Chief Technology Officer and members include two members from our Board of Directors, one independent Director and the President, the Information Security Officer, Chief Financial Officer, Chief Banking Officer, and officers of key business systems.
The Technology Committee is chaired by our Chief Technology & Information Security Officer and members include two members from our Board of Directors, one independent Director and the President, Chief Financial Officer, Chief Banking Officer, IT Infrastructure & Security Manager, and officers of key business systems.
Our Chief Technology Officer, who has over 25+ years of experience in financial services, including 15+ years in information technology, among other duties, is responsible for the security and integrity of systems, applications and databases and coordinates security implementations, monitoring and enforcement in conjunction with the Information Security Officer.
He has over 25+ years of experience in financial services, including 15+ years in information technology, and among other duties, is responsible for the security and integrity of systems, applications and databases and coordinates security implementations, monitoring, and enforcement.
Findings are tracked and reported to the Bank’s Technology Committee, and the Audit Committee of the Board of Directors. We have contracted with various service providers (vendors) who provide a broad range of services, including core banking, communications, collaboration and infrastructure services.
We have contracted with various service providers (vendors) who provide a broad range of services, including core banking, communications, collaboration and infrastructure services.
The Bank 32 Table of Contents maintains a chartered Technology Committee, which is responsible for the oversight of policies and practices relating to the identification, assessment, measurement, monitoring and management of our technology and information security risks.
These committees have processes to help facilitate appropriate and effective oversight of cybersecurity risk, including tracking and reporting of cybersecurity risks and remediation plans. The Bank maintains a chartered Technology Committee, which is responsible for the oversight of policies and practices relating to the identification, assessment, measurement, monitoring and management of our technology and information security risks.
Removed
He has over 40+ years of financial services related experience, including 10+ years of experience in cybersecurity program strategy, security architecture and security team leadership.
Added
Findings are tracked and reported to the Bank’s Technology Committee, and the Audit Committee of the Board of Directors. The FFIEC CAT will sunset in Fall 2025. We are currently evaluating other assessment tools which will be implemented in 2026.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed2 unchanged
Biggest changeWe typically establish branches as necessary to provide support for established business development professionals with substantial books of business and customer relationships. We believe that upon expiration of each of our leases we will be able to extend the leases on satisfactory terms or relocate to another acceptable location.
Biggest changeWe typically establish branches as necessary to provide support for established business development professionals with substantial books of business and customer relationships. We believe that upon expiration of each of our leases we will be able to extend the leases on satisfactory terms or relocate to another acceptable location. 32 Table of Contents
In addition to our main office, we also maintain nine additional branch offices in Arlington, Virginia; the independent city of Manassas, Virginia; Reston, Fairfax County, Virginia; Springfield, Fairfax County, Virginia; Montgomery County and Baltimore, Maryland; and Washington, D.C. We also maintain an operations center in Manassas. We lease all but one location; our branch located in Baltimore, Maryland.
In addition to our main office, we also maintain eight additional branch offices in Arlington, Virginia; the independent city of Manassas, Virginia; Reston, Fairfax County, Virginia; Springfield, Fairfax County, Virginia; Montgomery County and Baltimore, Maryland; and Washington, D.C. We also maintain an operations center in Manassas. We lease all but one location; our branch located in Baltimore, Maryland.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+1 added−2 removed10 unchanged
Biggest changeThe timing and amount of repurchases, if any, will depend on market conditions, share price, trading volume, and other factors, and there is no assurance that we will purchase shares during any period. Shares may be repurchased in the open market or through privately negotiated transactions.
Biggest changeThe Repurchase Program will expire on March 31, 2025, subject to earlier termination of the program by the Board of Directors. The timing and amount of repurchases, if any, will depend on market conditions, share price, 34 Table of Contents trading volume, and other factors, and there is no assurance that we will purchase shares during any period.
On December 15, 2022, the Company announced that the Board of Directors approved a five-for-four split of the Company's common stock in the form of a 25% stock dividend for shareholders of record on January 9, 2023, payable on January 31, 2023.
On December 15, 2022, the Company announced that the Board of Directors approved a five-for-four split of the Company's common stock in the form of a 25% stock dividend for shareholders of record on January 9, 2023. This dividend was paid on January 31, 2023.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Price for Common Stock and Dividends. Our common stock is currently listed on the Nasdaq Capital Market under the symbol "FVCB." As of March 15, 2024, there were 432 holders of record of our common stock and approximately 1,644 total beneficial shareholders.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Price for Common Stock and Dividends. Our common stock is currently listed on the Nasdaq Capital Market under the symbol "FVCB." As of March 14, 2025, there were 402 holders of record of our common stock and approximately 1,682 total beneficial shareholders.
Repurchases On March 16, 2023, we publicly announced that the Board of Directors had adopted a program to repurchase up to 1,300,000 shares of our common stock, or approximately 8% of our outstanding shares of common stock at December 31, 2022, which would expire on March 31, 2024.
Repurchases On March 21, 2024, we publicly announced that the Board of Directors had renewed the share repurchase program (the "Repurchase Program") that was initiated in 2020. Under the renewed Repurchase Program, we may purchase up to 1,300,000 shares of our common stock, or approximately 8% of our outstanding shares of common stock at December 31, 2023.
Removed
For the year ended 34 Table of Contents December 31, 2023, 115,750 shares of our common stock were repurchased at a total cost of $1.4 million under the program. All of these shares have been cancelled and returned to the status of authorized but unissued.
Added
Shares may be repurchased in the open market or through privately negotiated transactions. For the year ended December 31, 2024, no shares of our common stock were repurchased under the program. Item 6. Reserved
Removed
Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share ($) (c) Total Number of Shares Purchased as Part of Publicly Announced Program (d) Maximum Number of Shares that May Yet Be Purchased Under the Program October 1 - October 31, 2023 — — — — November 1 - November 30, 2023 — — — — December 1 - December 31, 2023 — — — 1,275,202 Total — — — 1,275,202 Item 6.

Item 7. Management's Discussion & Analysis

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

138 edited+37 added−71 removed36 unchanged
Biggest changeThe following table provides further stratification of these asset classes as of December 31, 2023 (dollars in thousands). 50 Table of Contents Owner Occupied Commercial Real Estate Non-Owner Occupied Commercial Real Estate Construction Total CRE Asset Class Average Loan-to-Value (1) Number of Total Loans Bank Owned Principal (2) Average Loan-to-Value (1) Number of Total Loans Bank Owned Principal (2) Top 3 Geographic Concentration Number of Total Loans Bank Owned Principal (2) Total Bank Owned Principal (2) % of Total Loans Office, Class A 70% 6 $7,558 47% 4 $3,776 Counties of Fairfax and Loudoun, Virginia and Montgomery County, Maryland — $— $11,334 Office, Class B 46% 35 13,751 47% 31 61,323 — — 75,074 Office, Class C 52% 7 3,793 41% 8 1,953 1 780 6,526 Subtotal 48 $25,102 43 $67,052 1 $780 $92,934 5% Retail- Neighborhood/Community Shop — $— 44% 31 $84,627 Prince George's County, Maryland, Fairfax County, Virginia and Washington, D.C. 2 $10,944 95,571 Retail- Restaurant 57% 9 8,183 45% 16 26,931 — — 35,114 Retail- Single Tenant 59% 5 2,001 42% 20 36,255 — — 38,256 Retail- Anchored,Other 71% 1 2,046 53% 12 41,572 — — 43,618 Retail- Grocery-anchored — — 46% 8 50,154 1 1,264 51,418 Subtotal 15 $12,230 87 $239,539 4 $12,208 $263,977 14% Multi-family, Class A (Market) — $— 27% 1 $— Washington, D.C., Baltimore City, Maryland and Arlington County, Virginia 1 $729 729 Multi-family, Class B (Market) — — 63% 21 78,559 — — 78,559 Multi-family, Class C (Market) — — 57% 57 71,902 2 6,816 78,718 Multi-Family-Affordable Housing — — 53% 10 16,524 1 4,075 20,599 Subtotal 0 $— 89 $166,985 4 $11,620 $178,605 10% Industrial 52% 43 $70,267 50% 38 $128,238 Prince William County, Virginia, Fairfax County, Virginia and Howard County, Maryland 1 $269 198,774 Warehouse 52% 14 18,761 33% 10 11,557 — — 30,318 Flex 51% 15 18,727 54% 14 56,531 2 — 75,258 Subtotal 72 $107,755 62 $196,326 3 $269 $304,350 17% Hotels — $— 43% 9 $52,588 1 $6,410 $58,998 3% Mixed Use 47% 10 6,174 61% 37 68,489 — $— $74,663 4% Other (including net deferred costs) $61,628 $87,765 $116,711 $266,104 14% Total commercial real estate and construction loans, net of fees, at December 31, 2023 $212,889 $878,744 $147,998 $1,239,631 68% _________________________ (1).
Biggest changeThe following table provides further stratification of these and additional classes of commercial real estate and construction loans at December 31, 2024 (dollars in thousands). 49 Owner Occupied Commercial Real Estate Non-Owner Occupied Commercial Real Estate Construction Total CRE Asset Class Average Loan-to-Value (1) Number of Total Loans Bank Owned Principal (2) Average Loan-to-Value (1) Number of Total Loans Bank Owned Principal (2) Top 3 Geographic Concentration Number of Total Loans Bank Owned Principal (2) Total Bank Owned Principal (2) % of Total Loans Office, Class A 69% 6 $7,374 46% 1 $2,982 Counties of Fairfax and Loudoun, Virginia and Montgomery County, Maryland — $— $10,356 Office, Class B 45% 27 10,173 45% 29 56,502 — — 66,675 Office, Class C 53% 9 5,326 39% 8 1,842 1 857 8,025 Office, Medical 39% 7 1,093 47% 6 28,060 1 9,633 38,786 Subtotal 49 $23,966 44 $89,386 2 $10,490 $123,842 7% Retail- Neighborhood/Community Shop — $— 44% 31 $86,706 Prince George's County, Maryland, Baltimore County, MD, Fairfax County, VA 1 $5,538 92,244 Retail- Restaurant 57% 7 6,152 44% 16 25,832 — — 31,984 Retail- Single Tenant 58% 5 1,919 41% 20 35,856 — — 37,775 Retail- Anchored,Other 0 — 52% 12 35,266 — — 35,266 Retail- Grocery-anchored — — 46% 9 53,753 0 — 53,753 Subtotal 12 $8,071 88 $237,413 1 $5,538 $251,022 13% Multi-family, Class A (Market) — $— 2 $1,438 Washington, D.C., Baltimore City, Maryland and Richmond City, Virginia 1 $1,276 $2,714 Multi-family, Class B (Market) — — 62% 21 69,752 1 3,991 73,743 Multi-family, Class C (Market) — — 55% 58 73,141 1 997 74,138 Multi-Family-Affordable Housing — — 52% 5 12,157 0 — 12,157 Subtotal — $— 86 $156,488 3 $6,264 $162,752 9% Industrial 51% 40 $65,926 47% 39 $124,079 Prince William County, Virginia, Fairfax County, Virginia and Howard County, Maryland 1 $1,781 $191,786 Warehouse 51% 14 18,745 27% 7 9,188 — — 27,933 Flex 50% 12 10,212 54% 14 56,393 3 132 66,737 Subtotal 66 $94,883 60 $189,660 4 $1,913 $286,456 15% Hotels $— 43% 9 $54,752 1 $7,791 $62,543 3% Mixed Use 45% 10 5,745 60% 33 60,898 — — 66,643 4% Land $ — $ — 11 $ 57,213 $57,213 3% 1- 4 family construction $ — $ — 3 48,504 48,504 2% Other (including net deferred fees) $55,517 $61,528 $24,654 141,699 8% Total commercial real estate and construction loans, net of fees, at December 31, 2024 $ 188,182 $ 850,125 $ 162,367 $ 1,200,674 64% Total commercial real estate and construction loans, net of fees, at December 31, 2023 $ 212,889 $ 878,744 $ 147,998 $ 1,239,631 68% _________________________ (1).
We are a member of the IntraFi Network, which allows banking customers to access FDIC insurance protection on deposits through our Bank which exceed FDIC insurance limits. As part of our membership with the IntraFi Network, we have one-way authority for both their CDARs and ICS products which provides the Bank the ability to access additional wholesale funding as needed.
We are a member of the IntraFi Network, which allows banking customers to access FDIC insurance protection on deposits through the Bank which exceed FDIC insurance limits. As part of our membership with the IntraFi Network, we have one-way authority for both their CDARs and ICS products which provides the Bank the ability to access additional wholesale funding as needed.
On August 31, 2021, we announced that the Bank made an investment in ACM for $20.4 million to obtain a 28.7% ownership interest in ACM. The Bank provides a warehouse lending facility to ACM, which includes a construction-to-permanent financing line, and has developed portfolio mortgage products to diversify our held to investment loan portfolio.
On August 31, 2021, we announced that the Bank made an investment in ACM for $20.4 million to obtain a 28% ownership interest in ACM. The Bank provides a warehouse lending facility to ACM, which includes a construction-to-permanent financing line, and has developed portfolio mortgage products to diversify our held for investment loan portfolio.
Financial Instruments with Off-Balance-Sheet Risk and Credit Risk We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit.
Financial Instruments with Off-Balance-Sheet Risk and Credit Risk We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of 57 credit.
We take a conservative approach with respect to risk rating loans in our portfolio. Based upon the status as a potential problem loan, these loans receive heightened scrutiny and ongoing intensive risk management.
We take a conservative approach with respect to risk rating loans in our portfolio. Based upon the status as a potential problem loan, these loans receive heightened scrutiny and ongoing intensive 50 risk management.
Potential problem loans are defined as loans that are not included in the 90 days or more past due, nonaccrual or restructured categories, but for which known information about possible credit problems causes us to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories.
Potential problem loans are defined as loans that are not included in the 90 days or more past due, nonaccrual, or rest ructured categories, but for which known information about possible credit problems causes us to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories.
As a result of the assessment performed as of December 31, 2023, the investment securities with unrealized losses are a result of pricing changes due to recent rising interest rate conditions in the current market environment and not as a result of credit deterioration. Contractual cash flows for agency-backed portfolios are guaranteed and funded by the U.S. government.
As a result of the assessment performed as of December 31, 2024, the investment securities with unrealized losses are a result of pricing changes due to recent rising interest rate conditions in the current market environment and not as a result of credit deterioration. Contractual cash flows for agency-backed portfolios are guaranteed and funded by the U.S. government.
Average balances of nonperforming loans, which consist of nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin in 2023 and 2022.
Average balances of nonperforming loans, which consist of nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin in 2024 and 2023.
Credit losses are an inherent part of our business and, although we believe the methodologies for determining the ACL and the current level of the allowance and reserve on unfunded commitments are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment.
Credit losses are an inherent part of our business and, although we believe the methodologies for determining the ACL and the current level of the allowance are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following presents management's discussion and analysis of our consolidated financial condition at December 31, 2023 and 2022 and the results of our operations for the years ended December 31, 2023 and 2022.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following presents management's discussion and analysis of our consolidated financial condition at December 31, 2024 and 2023 and the results of our operations for the years ended December 31, 2024 and 2023.
The remainder of the portfolio, representing all loans not evaluated individually for impairment, is segmented based on call report code and processed through a cash flow valuation model. In particular, loan-level probability of default ("PD") and severity (also referred to as loss given default ("LGD")) is applied to derive a baseline expected loss as of the valuation date.
The remainder of the portfolio, representing all loans not evaluated individually, is segmented based on call report code and processed through a non-discounted cash flow valuation model. In particular, loan-level probability of default ("PD") and severity (also referred to as loss given default ("LGD")) is applied to derive a baseline expected loss as of the valuation date.
These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management or regulatory capital management. Investment securities held-to-maturity at each of December 31, 2023 and 2022 totaled $264 thousand, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost.
These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management, or regulatory capital management. Investment securities held-to-maturity at December 31, 2024 and 2023 totaled $265 thousand and $264 thousand, respectively, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost.
This situation may arise due to circumstances that we may be unable 58 Table of Contents to control, such as general market disruption, negative views about the financial services industry generally, or an operational problem that affects a third party or us.
This situation may arise due to circumstances that we may be unable to control, such as general market disruption, negative views about the financial services industry generally, or an operational problem that affects a third party or us.
See “Critical Accounting Policies” above for more information on our allowance for credit losses methodology. The following tables present additional information pertaining to the activity in and allocation of the allowance for credit losses on loans by loan type and the percentage of the loan type to the total loan portfolio.
See “Critical Accounting Policies” above for more information on our allowance for credit losses methodology. The following tables present additional information pertaining to the activity in and allocation of the allowance for credit losses on loans by loan type and the percentage of the loan type to the total loan portfolio for the periods and at the dates presented.
Tangible book value per share (a non-GAAP financial measure which is defined in the table below) at December 31, 2023 and 2022 was $11.77 and $11.14, respectively. As noted above, regulatory capital levels for the bank meets those established for "well capitalized" institutions.
Tangible book value per share (a non-GAAP financial measure which is defined in the table below) at December 31, 2024 and December 31, 2023 was $12.52 and $11.77, respectively. As noted above, regulatory capital levels for the Bank meets those established for "well capitalized" institutions.
As of December 31, 2023 and 2022, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. In vestment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk.
As of December 31, 2024 and 2023, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk.
Stable core deposits and a strong capital position provide the base for our liquidity position. We believe we have demonstrated our ability to attract deposits because of our convenient branch locations, personal service, technology and pri cing.
Stable core deposits and a strong capital position provide 56 the base for our liquidity position. We believe we have demonstrated our ability to attract deposits because of our convenient branch locations, personal service, technology and pricing.
At December 31, 2023 and 2022, there were no performing loans considered potential problem loans.
At December 31, 2024 and 2023, there were no performing loans considered potential problem loans.
Our regulatory commercial real estate concentration (which includes nonowner-occupied real estate and construction loans) was 399% of our total risk based capital at December 31, 2023. Our commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We plan to manage this portion of our portfolio in a disciplined manner.
Our regulatory commercial real estate concentration (which includes nonowner-occupied real estate and construction loans) was 371% of our total risk-based capital at December 31, 2024. Our commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of our portfolio in a disciplined manner.
We reported noninterest income as a loss of $13.4 million for the year ended December 31, 2023, compared to noninterest income of $2.8 million for 2022, a decrease of $16.2 million, which was primarily driven by the losses recorded on the sale of available-for-sale securities totaling $15.6 million for the year ended December 31, 2023.
We reported noninterest income of $2.5 million for the year ended December 31, 2024, compared to a loss of $13.4 million for 2023, which was primarily driven by the losses recorded on the sale of available-for-sale securities totaling $15.6 million for the year ended December 31, 2023.
Asset quality remains sound with nonperforming loans and loans past due 90 days or more as a percentage of total assets of 0.08% at December 31, 2023, compared to 0.19% at December 31, 2022. • Total deposits increased $15.1 million or 1%, from December 31, 2022 to December 31, 2023.
Asset quality remains sound with nonperforming loans and loans past due 90 days or more as a percentage of total assets of 0.58% at December 31, 2024, compared to 0.08% at December 31, 2023. • Total deposits increased $25.3 million or 1%, from December 31, 2023 to December 31, 2024.
As mentioned above, our commercial real estate loan portfolio totaled $1.10 billion, or 60% of total, at both December 31, 2023 and at December 31, 2022. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration.
As mentioned above, our commercial real estate loan portfolio totaled $1.04 billion, or 56% of total loans, at December 31, 2024 and $1.09 billion, or 60% of total loans, at December 31, 2023. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration.
The yield on average investment securities increased 14 basis points to 1.95% for the year ended December 31, 2023, primarily as a result of the sale of lower yielding securities relative to the average yield of the securities portfolio.
The yield on average investment securities increased 14 basis points to 2.09% for the year ended December 31, 2024, primarily as a result of the sale of lower yielding securities in 2023 relative to the average yield of the securities portfolio.
See the above table for a reconciliation of GAAP net income to core bank operating earnings (non-GAAP). 41 Table of Contents Net Interest Income/Margin The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the years ended December 31, 2023 and 2022.
See the above table for a reconciliation of GAAP net income to commercial bank operating earnings (non-GAAP). 40 Net Interest Income/Margin The following table presents average balance information, interest income, interest expense and the corresponding average yields earned and rates paid for the years ended December 31, 2024 and 2023.
Our allowance for credit loss ratio as a percent of total loans, net of deferred fees and costs, for December 31, 2023 and 2022 was 1.03% and 1.02%, respectively. We lend to well-established and relationship-driven borrowers which has contributed to our track record of low historical credit losses.
Our allowance for credit losses on loans as a percent of total loans, net of deferred fees and costs, was 0.97% and 1.03% at December 31, 2024 and 2023, respectively. We lend to well-established and relationship-driven borrowers which has contributed to our track record of low historical credit losses.
The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan portfolio. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible.
The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan portfolio. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Recoveries are recorded to the extent they do not exceed the aggregate of amounts previously charged-off.
The reserve for unfunded commitments is reflected as a liability on our Consolidated Statement of Condition. 36 Table of Contents While our methodology in establishing the ACL attributes portions of a combined reserve to multiple elements, we believe that the combined allowance of credit losses (which is inclusive of the reserve for unfunded commitments) represents the most appropriate coverage metric for loss absorption purposes.
While our methodology in establishing the ACL attributes portions of a combined reserve to multiple elements, we believe that the combined allowance for credit losses (which is inclusive of the reserve for unfunded commitments) represents the most appropriate coverage metric for loss absorption purposes.
As of December 31, 2023, estimated uninsured deposits (excluding collateralized deposits) for the Bank improved to 31.1% of to tal deposits from 39.7% at December 31, 2022. In addition to deposits, we have access to the various wholesale funding markets. These markets include the brokered certificate of deposit market and the federal funds market.
As of December 31, 2024, estimated uninsured deposits (excluding collateralized deposits) for the Bank were 31 .2% of total deposits and were 31.1% at December 31, 2023. In addition to deposits, we have access to the various wholesale funding markets. These markets include the brokered certificate of deposit market and the federal funds market.
Average investment securities decreased $64.6 million to $287.5 million for the year ended December 31, 2023, compared to $352.1 million for the year ended December 31, 2022. The decrease in average investment securities was primarily a result of repositioning the investment portfolio with the sale of $102.5 million in book value available-for-sale investment securities during 2023.
Average investment securities decreased $79.0 million to $208.4 million for the year ended December 31, 2024, compared to $287.5 million for the year ended December 31, 2023. The decrease in average investment securities was primarily a result of repositioning the investment portfolio with the sale of $102.5 million in book value available-for-sale investment securities during 2023.
Average interest-earning deposits at other financial institutions, consisting primarily of excess cash reserves maintained at the Federal Reserve, decreased $23.8 million to $50.7 million for the year ended December 31, 2023, compared to $74.5 million for the year ended December 31, 2022.
Average interest-earning deposits at other financial institutions, consisting primarily of excess cash reserves maintained at the Federal Reserve, decreased $6.3 million to $44.4 million for the year ended December 31, 2024, compared to $50.7 million for the year ended December 31, 2023.
In accordance with ASC 326, we complete periodic assessments on at least a quarterly basis to determine if credit deterioration exists within our investment securities portfolio and if an allowance for credit losses would be required as of a valuation date. For additional details related to management's assessment process, see the “Critical Accounting Policies” section above.
In accordance with ASC 326, we complete periodic assessments on at least a quarterly basis to determine if credit deterioration exists within our investment securities portfolio and if an allowance for credit losses would be required as of a valuation date.
Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit.
In addition to managing interest rate risk, we also analyze our loan portfolio for exposure to credit risk. Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit.
Net interest income decreased $10.8 million to $54.4 million for the year ended December 31, 2023, compared to $65.2 million for the year ended December 31, 2022. For the year ended December 31, 2023, we recorded a provision for credit losses of $132 thousand compared to $2.6 million for the year ended December 31, 2022.
Net interest income increased $1.2 million to $55.6 million for the year ended December 31, 2024, compared to $54.4 million for the year ended December 31, 2023. For the year ended December 31, 2024, we recorded a provision for credit losses of $6 thousand compared to $132 thousand for the year ended December 31, 2023.
The increase in average rate of loans receivable contributed $14.7 million to interest income while the increase in average loan volume contributed $10.1 million to interest income.
The increase in the average rate of loans receivable contributed $5.6 million to interest income while the increase in average loan volume contributed $2.7 million to interest income.
We also maintain secured lines of credit with the FRB and the FHLB for which we can borrow up to the allowable amount for the collateral pledged. Having diverse funding alternatives reduces our reliance on any one source for funding. Cash flow from amortizing assets or maturing assets also provides funding to meet the needs of depositors and borrowers.
We also maintain secured lines of credit with the FRB and the FHLB for which we can borrow up to the allowable amount for the collateral pledged. Having diverse funding alternatives reduces our reliance on any one source for funding.
As such, no impairment was recognized in our investment securities portfolio as of December 31, 2023. We hold restricted investments in equities of the FRB and FHLB. At December 31, 2023, we owned $3.6 million in FRB stock and $5.8 million in FHLB stock.
As such, no impairment was recognized for our investment securities portfolio as of December 31, 2024. We hold restricted investments in equities of the FRB and FHLB. At December 31, 2024, we owned $4.1 million in FRB stock and $4.0 million in FHLB stock.
Liquid assets, which include cash and due from banks, federal funds sold and investment securities available for sale, totaled $232.1 million at December 31, 2023, or 11% of total assets, a decrease from $359.6 million, or 15%, at December 31, 2022.
Liquid assets, which include cash and due from banks, federal funds sold and investment securities available for sale, totaled $247.4 million at December 31, 2024, or 11% of total assets, an increase from $232.1 million, or 11% of total assets, at December 31, 2023.
Average noninterest-bearing deposits decreased $76.0 million, or 15%, to $425.9 million at December 31, 2023, compared to $502.0 million at December 31, 2022. During 2023, competition for deposits along with higher interest rates resulted in customers' movement of excess funds from noninterest-bearing into interest-bearing deposit products.
Average noninterest-bearing deposits decreased $57.3 43 million, or 13%, to $368.6 million at December 31, 2024, compared to $425.9 million at December 31, 2023. Competition for deposits along with higher interest rates resulted in customers' movement of excess funds from noninterest-bearing into interest-bearing deposit products.
Commercial bank operating earnings (non-GAAP), which exclude these securities losses and other nonrecurring expense items that were recorded during 2023 and 2022, were $16.3 million and $25.1 million, respectively. Diluted commercial bank operating earnings per share (non-GAAP) for the year ended December 31, 2023 and 2022 were $0.90 and $1.36, respectively.
Commercial bank operating earnings (non-GAAP), which exclude the taxes associated with the BOLI surrender, securities losses, and other nonrecurring expense items that were recorded during 2024 and 2023, were $17.4 million and $16.3 million, respectively. Diluted commercial bank operating earnings per share (non-GAAP) for the year ended December 31, 2024 and 2023 were $0.95 and $0.90, respectively.
The estimate of uninsured deposits generally represents the portion of deposit accounts that exceed the FDIC insurance limit of $250,000 and is calculated based on the same methodologies and assumptions used for purposes of the Bank's regulatory reporting requirements. 55 Table of Contents The following table reports maturities of the estimated amount of uninsured certificates of deposit at December 31, 2023.
The estimate of uninsured deposits generally represents the portion of deposit accounts that exceed the FDIC insurance limit of $250,000 and is calculated based on the same methodologies and assumptions used for purposes of the Bank's regulatory reporting requirements.
This decrease was primarily driven by the loss related to the sales of available-for-sale securities during 2023. • Noninterest expense was $36.7 million and $34.5 million for the years ended December 31, 2023 and 2022, respectively.
This increase was primarily driven by the loss related to the sales of available-for-sale securities during 2023. • Noninterest expense was $35.8 million and $36.7 million for the years ended December 31, 2024 and 2023, respectively, a decrease of $842 thousand, or 2%.
For a reconciliation of this non-GAAP information which excludes the effect of these non-recurring items, please refer to the table below. • Net interest income decreased $10.8 million, or 17%, to $54.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
For a reconciliation of this non-GAAP information which excludes the effect of these non-recurring items, please refer to the table below. • Net interest income increased $1.2 million, or 2%, to $55.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.
We recorded net charge-offs of $375 thousand during the year ended December 31, 2023 and net charge-offs of $418 thousand for same period of 2022. See “Asset Quality” below for additional information on the credit quality of the loan portfolio. Noninterest Income The following table provides detail for non-interest income for the years ended December 31, 2023 and 2022.
We recorded net charge-offs of $839 thousand and $375 thousand for the years ended December 31, 2024 and December 31, 2023, respectively. See “Asset Quality” below for additional information on the credit quality of the loan portfolio. 44 Noninterest Income The following table provides detail for noninterest incom e for the years ended December 31, 2024 and 2023.
Interest expense on other borrowed funds increased $1.9 million for the year ended December 31, 2023 to $3.8 million compared to $1.9 million for the same period of 2022.
Interest expense on other borrowed funds decreased $352 thousand for the year ended December 31, 2024 to $3.5 million compared to $3.8 million for the same period of 2023.
Noninterest-bearing deposits were $396.7 million at December 31, 2023, or 21.5% of total deposits. At December 31, 2023, core deposits, which exclude wholesale deposits, increased $17.9 million from December 31, 2022, or 1%. • Net income totaling $3.8 million was recorded for the year ended December 31, 2023 compared to $25.0 million for 2022.
Noninterest-bearing deposits were $365.7 million at December 31, 2024, or 19.5% of total deposits. At December 31, 2024, core deposits, which exclude wholesale deposits, increased $20.7 million from December 31, 2023, or 1%. • Net income was $15.1 million for the year ended December 31, 2024 compared to $3.8 million for 2023.
At December 31, 2022, we owned $4.4 million in FRB stock and $11.1 million in FHLB stock. 53 Table of Contents The following table presents the weighted average yields of our investment portfolio for each of the maturity ranges at December 31, 2023 and 2022.
At December 31, 2023, we owned $3.6 million in FRB stock and $5.8 million in FHLB stock. 52 The following table presents the weighted average yields of our investment portfolio for each of the maturity ranges at December 31, 2024 and 2023.
Includes capital conservation buffer. 57 Table of Contents Reconciliation of Book Value (GAAP) to Tangible Book Value (non-GAAP) At December 31, 2023 and 2022 (Dollars in thousands, except per share data) 2023 2022 Total stockholders' equity (GAAP) $ 217,117 $ 202,382 Less: goodwill and intangibles, net (7,585) (7,790) Tangible Common Equity (non-GAAP) $ 209,532 $ 194,592 Book value per common share (GAAP) $ 12.19 $ 11.58 Less: intangible book value per common share (0.42) (0.44) Tangible book value per common share (non-GAAP) $ 11.77 $ 11.14 Liquidity Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and borrowers.
Reconciliation of Book Value (GAAP) to Tangible Book Value (non-GAAP) At December 31, 2024 and December 31, 2023 (Dollars in thousands, except per share data) 2024 2023 Total stockholders' equity (GAAP) $ 235,354 $ 217,117 Less: goodwill and intangibles, net (7,420) (7,585) Tangible Common Equity (non-GAAP) $ 227,934 $ 209,532 Book value per common share (GAAP) $ 12.93 $ 12.19 Less: intangible book value per common share (0.41) (0.42) Tangible book value per common share (non-GAAP) $ 12.52 $ 11.77 Liquidity Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and borrowers.
At December 31, 2023 and 2022, we had $254.1 million and $117.6 million, respectively, in either CDARS reciprocal or ICS reciprocal products. As of December 31, 2023 and 2022, the estimated amount of total uninsured deposits (excluding collateralized deposits) was $574.6 million, or 31.1%, and $727.3 million, or 39.7%, of total deposits, respectively.
At December 31, 2024 and 2023, we had $269.7 million and $254.1 million, respectively, in CDARS reciprocal and ICS reciprocal products. As of December 31, 2024, the estimated amount of total uninsured deposits (excluding collateralized deposits) was $763.1 million, or 40.8%, of total deposits.
As the Company is a bank holding company with less than $3.00 billion in assets, and which does not (i) conduct significant off balance sheet activities, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Securities Exchange Act of 1934 (the “Exchange Act”), it is not currently subject to risk-based capital requirements adopted by the Federal Reserve, pursuant to the small bank holding company policy statement.
While we are currently considered "well capitalized," we may from time to time find it necessary to access the capital markets to meet our growth objectives or capitalize on specific business opportunities. 55 As the Company is a bank holding company with less than $3.00 billion in assets, and which does not (i) conduct significant off-balance sheet activities, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Exchange Act, it is not currently subject to risk-based capital requirements adopted by the Federal Reserve, pursuant to the small bank holding company policy statement.
From time to time, we may utilize other borrowed funds such as federal funds purchased and FHLB advances as an additional funding source for the Bank. For December 31, 2023, we had no federal funds purchased compared to $30 million at December 31, 2022.
From time to time, we may utilize funding sources such as federal funds purchased and FHLB advances as an additional funding source for the Bank. We had no federal funds purchased at December 31, 2024 and December 31, 2023. The Bank had FHLB advances outstanding of $50.0 million and $85.0 million at December 31, 2024 and December 31, 2023, respectively.
At December 31, 2023 and 2022, unused commitments to fund loans and lines of credit totaled $215.9 million and $235.6 million, respectively. Commercial and standby letters of credit totaled $26.0 million and $6.5 million at December 31, 2023 and 2022, respectively. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not required. 59 Table of Contents
At December 31, 2024 and 2023, unused commitments to fund loans and lines of credit totaled $196.7 million and $252.5 million, respectively. Commercial and standby letters of credit totaled $25.2 million at December 31, 2024 and $26.0 million at December 31, 2023. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not required. 58
The return on average assets for the years ended December 31, 2023 and 2022 based on operating earnings (a non-GAAP metric) was 0.72% and 1.18%, respectively. The return on average equity for the years ended December 31, 2023 and 2022 based on core bank operating earnings (non-GAAP) was 7.78% and 12.39%, respectively.
The return on average assets for the years ended December 31, 2024 and 2023 based on commercial bank operating earnings (non-GAAP) was 0.80% and 0.72%, respectively. The return on average equity for the years ended December 31, 2024 and 2023 based on commercial bank operating earnings (non-GAAP) was 7.69% and 7.78%, respectively.
Nonperforming Assets At December 31, 2023 and 2022 (Dollars in thousands) 2023 2022 Nonperforming assets: Nonaccrual loans, gross $ 1,689 $ 3,150 Loans contractually past‑due 90 days or more and still accruing 140 1,343 Total nonperforming loans (NPLs) $ 1,829 $ 4,493 Total nonperforming assets (NPAs) $ 1,829 $ 4,493 NPLs/Total Assets 0.08 % 0.19 % NPAs/Total Assets 0.08 % 0.19 % Allowance for credit losses on loans/NPLs 1,031.77 % 357.00 % Combined allowance for credit losses/NPLs 1,064.70 % 357.00 % We are closely and proactively monitoring the effects of recent market activity.
Nonperforming Loans and Assets At December 31, 2024 and 2023 (Dollars in thousands) December 31, 2024 December 31, 2023 Nonperforming assets: Nonaccrual loans, gross $ 11,241 $ 1,689 Loans contractually past‑due 90 days or more and still accruing 1,619 140 Total nonperforming loans (NPLs) $ 12,860 $ 1,829 Total nonperforming assets (NPAs) $ 12,860 $ 1,829 NPLs/Total Assets 0.58 % 0.08 % NPAs/Total Assets 0.58 % 0.08 % Allowance for credit losses on loans/NPLs 140.97 % 1,031.77 % We closely and proactively monitor the effects of recent market activity.
Asset Quality Nonperforming loans, defined as nonaccrual loans and loans contractually past due 90 days or more as to principal or interest and still accruing, were $1.8 million and $4.5 million at December 31, 2023 and 2022, respectively, a decrease of $2.7 million, or 60%.
Asset Quality Nonperforming loans, defined as nonaccrual loans and loans contractually past due 90 days or more as to principal or interest and still accruing, were $12.9 million and $1.8 million at December 31, 2024 and 2023, respectively, an increase of $11.0 million.
Expected recoveries are recorded to the extent they do not exceed the aggregate of amounts previously and expected to be charged-off. Reserves on loans that do not share risk characteristics are evaluated on an individual basis. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation.
Reserves on loans that do not share risk characteristics are evaluated on an individual basis. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation.
The yield on interest-earning assets increased 93 basis points to 4.88% for the year ended December 31, 2023, compared to 3.95% for the same period of 2022, a result of the increased rate environment during 2023.
The yield on interest-earning assets increased 46 basis points to 5.34% for the year ended December 31, 2024, compared to 4.88% for the same period of 2023, a result of the increased rate environment during 2024 and our balance sheet repositionings from 2023.
A verage loans receivable increased $230.2 million to $1.85 billion for the year ended December 31, 2023, compared to $1.62 billion for the year ended December 31, 2022. The yield on average loans increased 77 basis points to 5.32% for the year ended December 31, 2023.
Average loans receivable increased $21.2 million to $1.87 billion for the year ended December 31, 2024, compared to $1.85 billion for the year ended December 31, 2023. The yield on average loans increased 39 basis points to 5.71% for the year ended December 31, 2024.
Allowance for Credit Losses on Loans Years Ended December 31, 2023 and 2022 (Dollars in thousands) 2023 2022 Net (charge-offs) recoveries Percentage of net charge-offs to average loans outstanding during the year Net (charge-offs) recoveries Percentage of net charge-offs to average loans outstanding during the year Commercial real estate $ (53) — % $ — — % Commercial and industrial (347) (0.02) % (396) (0.02) % Consumer residential 1 — % 1 — % Consumer nonresidential 24 — % (23) — % Total $ (375) (0.02) % $ (418) (0.03) % Average loans outstanding during the period $ 1,848,308 $ 1,618,077 December 31, 2023 2022 Allowance for credit losses to loans receivable, net of fees 1.03 % 0.87 % Combined allowance for credit losses to loans receivable, net of fees 1.06 % 0.87 % Allocation of the Allowance for Credit Losses on Loans At December 31, 2023 and 2022 (Dollars in thousands) 2023 2022 Allocation % of Total* Allocation % of Total* Commercial real estate $ 10,174 59.88 % $ 10,777 59.77 % Commercial and industrial 3,385 12.07 % 2,623 13.32 % Commercial construction 1,425 8.13 % 1,499 8.04 % Consumer residential 3,822 19.61 % 1,044 18.45 % Consumer nonresidential 65 0.31 % 97 0.42 % Total allowance for credit losses $ 18,871 100.00 % $ 16,040 100.00 % ___________________ 52 Table of Contents * Percentage of loan type to the total loan portfolio .
Allowance for Credit Losses on Loans Years Ended December 31, 2024 and 2023 (Dollars in thousands) 2024 2023 Net (charge-offs) recoveries Percentage of net charge-offs to average loans outstanding during the year Net (charge-offs) recoveries Percentage of net charge-offs to average loans outstanding during the year Commercial real estate $ — — % $ (53) — % Commercial and industrial $ (747) (0.04) % $ (347) (0.02) % Consumer residential (121) (0.01) % 1 — % Consumer nonresidential 28 — % 24 — % Total $ (840) (0.04) % $ (375) (0.02) % Average loans outstanding during the period $ 1,869,470 $ 1,848,308 December 31, 2024 2023 Allowance for credit losses on loans receivable, net of fees 0.97 % 1.03 % Allocation of the Allowance for Credit Losses on Loans At December 31, 2024 and 2023 (Dollars in thousands) 2024 2023 Allocation % of Total* Allocation % of Total* Commercial real estate $ 9,434 52.04 % $ 10,174 59.88 % Commercial and industrial 3,139 17.31 % 3,385 12.07 % Commercial construction 1,713 9.45 % 1,425 8.13 % Consumer residential 3,775 20.82 % 3,822 19.61 % Consumer nonresidential 68 0.38 % 65 0.31 % Total allowance for credit losses $ 18,129 100.00 % $ 18,871 100.00 % 51 ___________________ * Percentage of loan type to the total loan portfolio .
Wholesale deposits were $245.3 million at December 31, 2023 compared to $248.0 million at December 31, 2022, a decrease of $2.7 million, or 1%. Wholesale deposits are partially fixed at a weighted average rate of 3.77% as we have executed $165.0 million in pay-fixed/receive-floating interest rate swaps to reduce funding costs.
Wholesale deposits were $249.9 million at December 31, 2024 compared to $245.3 million at December 31, 2023, an increase of $4.6 million, or 2%. Wholesale deposits are partially fixed at a weighted average rate of 3.40% as we have executed $200.0 million i n pay-fixed/receive-floating interest rate swaps to reduce funding costs.
The following table sets forth the repricing characteristics and sensitivity to interest rate changes to the outstanding principal balance of our loan portfolio at December 31, 2023 .
The decrease in residential loans was primarily a result of principal repayments during 2024. 47 The following table sets forth the repricing characteristics and sensitivity to interest rate changes to the outstanding principal balance of our loan portfolio at December 31, 2024.
In addition to net interest income, non-interest income is a complementary source of revenue for us and includes, among other things, service charges on deposits and loans, income from minority membership interest in ACM, merchant services fee income, insurance commission income, income from bank owned life insurance ("BOLI"), and gains and losses on sales of investment securities available-for-sale. 35 Table of Contents Critical Accounting Policies General The accounting principles we apply under GAAP are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters.
In addition to net interest income, noninterest income is a complementary source of revenue for us and includes, among other things, service charges on deposits and loans, income from minority membership interest in ACM, merchant services fee income, insurance commission income, income from bank owned life insurance ("BOLI"), and gains and losses on sales of investment securities available-for-sale.
The year ended December 31, 2023 results include after-tax losses of $12.2 million for the first quarter 2023 and fourth quarter 2023 securities repositionings. Core bank operating earnings, which excludes the securities sales and other nonrecurring items discussed more fully below under "Results of Operations", for the year ended December 31, 2023 was $16.3 million.
Commercial bank operating earnings (non-GAAP), which excludes the securities sales and other nonrecurring items discussed more fully below under "Results of Operations", for the year ended December 31, 2024 and 2023 was $17.4 million and $16.3 million, respectively.
The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the years ended December 31, 2023 and 2022.
The following table shows the effect of variations in the volume and mix of our assets and liabilities, as well as the changes in interest rates had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the years ended December 31, 2024 and 2023.
Years Ended December 31, Non‑GAAP Reconciliation (Dollars in thousands, except per share data) 2023 2022 Total stockholders' equity $ 217,117 $ 202,382 Less: goodwill and intangibles, net (7,585) (7,790) Tangible Common Equity $ 209,532 $ 194,592 Book value per common share $ 12.19 $ 11.58 Less: intangible book value per common share (0.42) (0.44) Tangible book value per common share $ 11.77 $ 11.14 40 Table of Contents Results of Operations—Years Ended December 31, 2023 and December 31, 2022 Overview We recorded net income of $3.8 million, or $0.21 per diluted common share, for the year ended December 31, 2023, compared to net income of $25.0 million, or $1.35 per diluted common share for the year ended December 31, 2022.
(3) Efficiency ratio is calculated as total noninterest expense divided by the total of net interest income and noninterest income. 39 Non‑GAAP Reconciliation Years Ended December 31, (Dollars in thousands, except per share data) 2024 2023 Total stockholders' equity $ 235,354 $ 217,117 Less: goodwill and intangibles, net (7,420) (7,585) Tangible Common Equity $ 227,934 $ 209,532 Book value per common share $ 12.93 $ 12.19 Less: intangible book value per common share (0.41) (0.42) Tangible book value per common share $ 12.52 $ 11.77 Results of Operations— Years Ended December 31, 2024 and December 31, 2023 Overview We recorded net income of $15.1 million, or $0.82 per diluted common share, for the year ended December 31, 2024, compared to net income of $3.8 million, or $0.21 per diluted common share for the year ended December 31, 2023.
At December 31, 2023, we had $22.5 million in loans identified as substandard, an increase of $18.4 million from December 31, 2022. Substandard rated loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed.
Substandard rated loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed.
Investment securities that were pledged to secure public deposits totaled $7.2 million an d $104.6 million at December 31, 2023 and 2022, respectively.
Investment securities that were pledged to secure public deposits totaled $55.3 million and $7.2 million at December 31, 2024 and 2023, respectively. There were no investment securities that were pledged to secure FRB borrowings at December 31, 2024 and December 31, 2023, respectively.
Deterioration in real estate values, employment data and household incomes may also result in higher credit losses for us. Also, in the ordinary course of business, we may be subject to a concentration of credit risk to a particular industry, counterparty, borrower or issuer.
Also, in the ordinary course of business, we may be subject to a concentration of credit risk to a particular industry, counterparty, borrower or issuer.
We manage our balance sheet and interest rate risk exposure to maximize, and concurrently stabilize, net interest income. We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities.
We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities. We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it entirely.
At December 31, 2023, we had $6.2 million in loans identified as special mention, a decrease of $4.2 million from December 31, 2022. Special mention rated loans have a potential weakness that deserves our close attention; however, the borrower continues to pay in accordance with their contractual terms, unless modified and disclosed.
Special mention rated loans have a potential weakness that deserves our close attention; however, the borrower continues to pay in accordance with their contractual terms, unless modified and disclosed. The decrease from December 31, 2023 was driven by several loans that were upgraded from special mention or paid off during 2024.
Noninterest Income Years Ended December 31, 2023 and 2022 (Dollars in thousands) Years Ended December 31, Change from Prior Year 2023 2022 Amount Percent Service charges on deposit accounts $ 1,028 $ 954 $ 74 7.8 % Fees on loans 388 232 156 67.2 % BOLI income 1,452 1,200 252 21.0 % (Loss) income from minority membership interest (1,110) (33) (1,077) 3263.6 % Loss on sale of available-for-sale securities (15,577) — (15,577) — % Other fee income 449 481 (32) (6.7) % Total non‑interest income (loss) $ (13,370) $ 2,834 $ (16,204) (571.8) % Noninterest income includes service charges on deposits and loans, loan swap fee income, income from our membership interest in ACM and other investments, income from our BOLI policies, and other fee income, and continues to supplement our operating results.
Noninterest Income Years Ended December 31,2024 and 2023 (Dollars in thousands) Year Ended December 31, 2024 2023 Change from Prior Year Amount Percent Service charges on deposit accounts $ 1,126 $ 1,028 $ 98 9.5 % Fees on loans 185 388 (203) (52.3) % BOLI income 397 1,452 (1,055) (72.7) % Income (loss) from minority membership interest 376 (1,110) 1,486 (133.9) % Loss on sale of available-for-sale securities — (15,577) 15,577 (100.0) % Other fee income 450 449 1 0.2 % Total noninterest income (loss) $ 2,534 $ (13,370) $ 15,904 (119.0) % Noninterest income includes service charges on deposits and loans, loan swap fee income, income from our membership interest in ACM and other investments, income from our BOLI policies, and other fee income, and continues to supplement our operating results.
Management must use assumptions, judgments and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such judgments, assumptions and estimates may have a significant impact on the consolidated financial statements.
These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions, and estimates. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.
We also recorded a loss from minority membership interest, primarily from our investment in ACM, totaling $1.1 million for the year ended December 31, 2023, compared a loss of $33 thousand for the year ended December 31, 2022.
For the year ended December 31, 2024, we recorded noninterest income of $2.5 million compared to a loss of $13.4 million for same period of 2023. We recorded income from our minority membership interest in ACM totaling $376 thousand for the year ended December 31, 2024, compared to a loss of $1.1 million for same period of 2023.
The following tables shows the minimum capital requirement and our capital position at December 31, 2023 and 2022 for the Bank.
The following tables shows the minimum capital requirements and the Bank's capital position at December 31, 2024 and December 31, 2023.
Additionally, information is provided to the Board of Directors on a quarterly basis along with our consolidated financial statements.
The review of the reasonableness and appropriateness of the ACL is reviewed by the ACL Committee for approval as of the valuation date. Additionally, information is provided to the Board of Directors on a quarterly basis along with our consolidated financial statements.
Average wholesale deposits increased $242.0 million to $303.5 million as of December 31, 2023 compared to $61.5 million as of December 31, 2022. Average other borrowed funds increased $31.8 million to $102.1 million for the year ended December 31, 2023, compared to $70.3 million for the year ended December 31, 2022.
Average wholesale deposits decreased $39.8 million to $263.7 million as of December 31, 2024 compared to $303.5 million as of December 31, 2023. Average other borrowed funds decreased $22.2 million to $79.9 million for the year ended December 31, 2024, compared to $102.1 million for the year ended December 31, 2023.
Internet banking and software expense increased $798 thousand for the year ended December 31, 2023 to $2.5 million, compared to $1.7 million for the same period in 2022, primarily as a result of the implementation of enhanced customer software solutions.
These decreases were partially offset by an increase in internet banking and software expense of $485 thousand to $3.0 million for the year ended December 31, 2024, compared to $2.5 million for the same period of 2023, a result of the implementation of enhanced customer software solutions during 2023.
Selected Financial Data (Dollars and shares in thousands, except per share data) Years Ended December 31, 2023 2022 Income Statement Data: Interest income $ 106,615 $ 80,682 Interest expense 52,219 15,438 Net interest income 54,396 65,244 Provision for credit losses 132 2,629 Net interest income after provision for credit losses 54,264 62,615 Non‑interest income (loss) (13,370) 2,834 Non‑interest expense 36,662 34,460 Net income before income taxes 4,232 30,989 Provision for income taxes 410 6,005 Net income $ 3,822 $ 24,984 Balance Sheet Data: Total assets $ 2,190,558 $ 2,344,322 Loans receivable, net of fees 1,828,564 1,840,434 Allowance for credit losses (18,871) (16,040) Total investment securities 171,859 278,333 Total deposits 1,845,292 1,830,162 Other borrowed funds 104,620 284,565 Total shareholders' equity 217,117 202,382 Common shares outstanding 17,807 17,476 39 Table of Contents Years Ended December 31, 2023 2022 Per Common Share Data (1) : Basic net income $ 0.22 $ 1.43 Fully diluted net income 0.21 1.35 Book value 12.19 11.58 Tangible book value (2) 11.77 11.14 Performance Ratios: Return on average assets 0.17 % 1.18 % Return on average equity 1.82 12.34 Net interest margin (3) 2.49 3.19 Efficiency ratio (4) 89.36 50.62 Non‑interest income to average assets (0.59) 0.13 Non‑interest expense to average assets 1.61 1.62 Loans receivable, net of fees to total deposits 99.09 100.56 Asset Quality Ratios: Net charge‑offs (recoveries) to average loans receivable, net of fees 0.02 % 0.03 % Nonperforming loans to loans receivable, net of fees 0.10 0.24 Nonperforming assets to total assets 0.08 0.19 Allowance for credit losses to nonperforming loans 1,031.77 357.00 Allowance for credit losses on loans to loans receivable, net of fees 1.03 0.87 Capital Ratios (Bank Only): Tangible common equity 10.12 % 8.86 % Total risk‑based capital 13.83 13.28 Common Equity Tier 1 capital 12.80 12.45 Leverage capital ratio 10.77 10.75 Other: Average shareholders' equity to average total assets 9.24 % 9.53 % Average loans receivable, net of fees to average total deposits 96.52 86.77 Average common shares outstanding (1) : Basic 17,723 17,431 Diluted 18,231 18,484 ______________________ (1) Amounts for all periods include the effect of a 5-for-4 stock split declared on December 15, 2022.
Selected Financial Data (Dollars and shares in thousands, except per share data) Years Ended December 31, 2024 2023 Income Statement Data: Interest income $ 113,312 $ 106,615 Interest expense 57,723 52,219 Net interest income 55,589 54,396 Provision for credit losses 6 132 Net interest income after provision for credit losses 55,583 54,264 Non‑interest income (loss) 2,534 (13,370) Non‑interest expense 35,820 36,662 Net income before income taxes 22,297 4,232 Provision for income taxes 7,233 410 Net income $ 15,064 $ 3,822 38 Years Ended December 31, 2024 2023 Balance Sheet Data: Total assets $ 2,198,950 $ 2,190,558 Loans receivable, net of fees 1,870,235 1,828,564 Allowance for credit losses (18,129) (18,871) Total investment securities 156,740 171,859 Total deposits 1,870,605 1,845,292 Other borrowed funds 68,695 104,620 Total shareholders' equity 235,354 217,117 Common shares outstanding 18,204 17,807 Per Common Share Data: Basic net income $ 0.83 $ 0.22 Fully diluted net income 0.82 0.21 Book value 12.93 12.19 Tangible book value (1) 12.52 11.77 Performance Ratios: Return on average assets 0.69 % 0.17 % Return on average equity 6.64 1.82 Net interest margin (2) 2.62 2.49 Efficiency ratio (3) 61.63 89.36 Non‑interest income to average assets 0.12 (0.59) Non‑interest expense to average assets 1.65 1.61 Loans receivable, net of fees to total deposits 99.98 99.09 Asset Quality Ratios: Net charge‑offs (recoveries) to average loans receivable, net of fees 0.04 % 0.02 % Nonperforming loans to loans receivable, net of fees 0.69 0.10 Nonperforming assets to total assets 0.58 0.08 Allowance for credit losses to nonperforming loans 141.38 1,031.77 Allowance for credit losses on loans to loans receivable, net of fees 0.97 1.03 Capital Ratios (Bank Only): Tangible common equity 10.87 % 10.12 % Total risk‑based capital 14.73 13.83 Common Equity Tier 1 capital 13.74 12.80 Leverage capital ratio 11.74 10.77 Other: Average shareholders' equity to average total assets 10.42 % 9.24 % Average loans receivable, net of fees to average total deposits 102.54 96.52 Average common shares outstanding: Basic 18,057 17,723 Diluted 18,397 18,231 ______________________ (1) Non-GAAP: Tangible book value is calculated as total stockholders' equity, less goodwill and other intangible assets, divided by common shares outstanding.
Bank Capital Components At December 31, 2023 and 2022 (Dollars in thousands) Actual Minimum Capital Requirement (1) Minimum to be Well Capitalized Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio At December 31, 2023 Total risk-based capital $ 261,403 13.83 % $ 198,413 > 10.50 % $ 188,965 > 10.00 % Tier 1 risk-based capital 241,930 12.80 % 160,620 > 8.50 % 151,172 > 8.00 % Common equity tier 1 capital 241,930 12.80 % 132,275 > 7.00 % 122,827 > 6.50 % Leverage capital ratio 241,930 10.77 % 89,842 > 4.00 % 112,302 > 5.00 % At December 31, 2022 Total risk-based capital $ 256,898 13.28 % $ 203,113 > 10.50 % $ 193,441 > 10.00 % Tier 1 risk-based capital 240,858 12.45 % 164,425 > 8.50 % 154,753 > 8.00 % Common equity tier 1 capital 240,858 12.45 % 135,409 > 7.00 % 125,737 > 6.50 % Leverage capital ratio 240,858 10.75 % 87,894 > 4.00 % 109,867 > 5.00 % ________________________ (1).
Bank Capital Components At December 31, 2024 and December 31, 2023 (Dollars in thousands) Actual Minimum Capital Requirement (1) Minimum to be Well Capitalized Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio At December 31, 2024 Total risk-based capital $ 277,248 14.73 % $ 197,582 > 10.50 % $ 188,174 > 10.00 % Tier 1 risk-based capital 258,608 13.74 % 159,948 > 8.50 % 150,539 > 8.00 % Common equity tier 1 capital 258,608 13.74 % 131,722 > 7.00 % 122,313 > 6.50 % Leverage capital ratio 258,608 11.74 % 88,115 > 4.00 % 110,144 > 5.00 % At December 31, 2023 Total risk-based capital $ 261,403 13.83 % $ 198,413 > 10.50 % $ 188,965 > 10.00 % Tier 1 risk-based capital 241,930 12.80 % 160,620 > 8.50 % 151,172 > 8.00 % Common equity tier 1 capital 241,930 12.80 % 132,275 > 7.00 % 122,827 > 6.50 % Leverage capital ratio 241,930 10.77 % 89,842 > 4.00 % 112,302 > 5.00 % ________________________ (1).
We have established a formal liquidity contingency plan which establishes a liquidity management team and provides guidelines for liquidity management. For our liquidity management program, we first determine our current liquidity position and then forecast liquidity based on anticipated changes in the balance sheet. In this forecast, we expect to maintain a liquidity cushion.
For our liquidity management program, we first determine our current liquidity position and then forecast liquidity based on anticipated changes in the balance sheet. In this forecast, we expect to maintain a liquidity cushion. We also stress test our liquidity position under several different stress scenarios, from moderate to severe.
Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities Years Ended December 31, 2023 and 2022 (Dollars in thousands) 2023 2022 Average Balance Interest Income/ Expense Average Yield/ Rate Average Balance Interest Income/ Expense Average Yield/ Rate Assets Interest‑earning assets: Loans receivable, net of fees Commercial real estate $ 1,103,325 $ 53,356 4.84 % $ 978,983 $ 42,646 4.36 % Commercial and industrial 206,432 15,170 7.35 % 181,540 9,820 5.41 % Commercial construction 154,658 10,917 7.06 % 165,088 8,762 5.31 % Consumer real estate 358,740 17,039 4.75 % 240,055 10,079 4.20 % Warehouse facilities 19,097 1,343 7.03 % 43,268 1,612 3.73 % Consumer nonresidential 6,056 548 9.05 % 9,143 705 7.71 % Total loans (1) 1,848,308 98,373 5.32 % 1,618,077 73,624 4.55 % Investment securities (2)(3) 287,454 5,606 1.95 % 352,064 6,382 1.81 % Interest-bearing deposits at other financial institutions 50,705 2,641 5.21 % 74,477 685 0.92 % Total interest‑earning assets and interest income 2,186,467 106,620 4.88 % 2,044,618 80,691 3.95 % Noninterest‑earning assets: Cash and due from banks 6,168 873 Premises and equipment, net 1,121 1,410 Accrued interest and other assets 97,440 92,761 Allowance for credit losses (18,602) (14,596) Total assets $ 2,272,594 $ 2,125,066 Liabilities and Stockholders' Equity Interest ‑ bearing liabilities: Interest ‑ bearing deposits: Interest checking $ 581,655 $ 16,903 2.91 % $ 724,881 $ 5,966 0.82 % Savings and money markets 254,721 6,102 2.40 % 315,653 2,662 0.84 % Time deposits 349,270 12,791 3.66 % 203,719 2,908 1.43 % Wholesale deposits 303,472 11,549 3.81 % 61,478 932 1.52 % Total interest ‑ bearing deposits 1,489,118 47,345 3.18 % 1,305,731 12,468 0.95 % Other borrowed funds 102,050 3,844 3.77 % 70,299 1,939 2.76 % Subordinated notes, net of issuance costs 19,590 1,030 5.26 % 19,535 1,031 5.28 % Total interest‑bearing liabilities and interest expense 1,610,758 52,219 3.24 % 1,395,565 15,438 1.11 % Noninterest‑bearing liabilities: Demand deposits 425,914 501,962 Other liabilities 26,013 25,059 Common stockholders' equity 209,909 202,480 Total liabilities and stockholders' equity $ 2,272,594 $ 2,125,066 Net interest income and net interest margin $ 54,401 2.49 % $ 65,253 3.19 % ________________________ (1) Non-accrual loans are included in average balances and do not have a material effect on the average yield.
Average Balances and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities Years Ended December 31, 2024 and 2023 (Dollars in thousands) 2024 2023 Average Balance Interest Income/ Expense Average Yield/ Rate Average Balance Interest Income/ Expense Average Yield/ Rate Assets Interest‑earning assets: Loans receivable, net of fees Commercial real estate $ 1,076,027 $ 55,116 5.12 % $ 1,103,325 $ 53,356 4.84 % Commercial and industrial 262,844 21,099 8.03 % 206,432 15,170 7.35 % Commercial construction 165,134 12,044 7.29 % 154,658 10,917 7.06 % Consumer real estate 341,843 16,616 4.86 % 358,740 17,039 4.75 % Warehouse facilities 17,408 1,284 7.38 % 19,097 1,343 7.03 % Consumer nonresidential 6,214 509 8.19 % 6,056 548 9.05 % Total loans (1) 1,869,470 106,668 5.71 % 1,848,308 98,373 5.32 % Investment securities (2) 208,406 4,351 2.09 % 287,454 5,606 1.95 % Interest-bearing deposits at other financial institutions 44,360 2,293 5.17 % 50,705 2,641 5.21 % Total interest‑earning assets and interest income $ 2,122,236 $ 113,312 5.34 % $ 2,186,467 $ 106,620 4.88 % Noninterest‑earning assets: Cash and due from banks 7,474 6,168 Premises and equipment, net 930 1,121 Accrued interest and other assets 64,310 97,440 Allowance for credit losses (18,963) (18,602) Total assets $ 2,175,987 $ 2,272,594 Liabilities and Stockholders' Equity Interest ‑ bearing liabilities: Interest ‑ bearing deposits: Interest checking $ 571,432 $ 19,526 3.42 % $ 581,655 $ 16,903 2.91 % Savings and money markets 344,272 12,384 3.60 % 254,721 6,102 2.40 % Time deposits 275,288 11,979 4.35 % 349,270 12,791 3.66 % Wholesale deposits 263,664 9,317 3.53 % 303,472 11,549 3.81 % Total interest ‑ bearing deposits 1,454,656 53,206 3.66 % 1,489,118 47,345 3.18 % Other borrowed funds 79,874 3,490 4.37 % 102,050 3,844 3.77 % Subordinated notes, net of issuance costs 19,613 1,027 5.23 % 19,590 1,030 5.26 % Total interest‑bearing liabilities and interest expense $ 1,554,143 $ 57,723 3.71 % $ 1,610,758 $ 52,219 3.24 % Noninterest‑bearing liabilities: Demand deposits 368,591 425,914 Other liabilities 26,408 26,013 Common stockholders' equity 226,845 209,909 Total liabilities and stockholders' equity $ 2,175,987 $ 2,272,594 Net interest income and net interest margin $ 55,589 2.62 % $ 54,401 2.49 % ________________________ (1) Nonaccrual loans are included in average balances and do not have a material effect on the average yield.

… 166 more changes not shown on this page.

Other FVCB 10-K year-over-year comparisons