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What changed in SOUTHERN FIRST BANCSHARES INC's 10-K — 2022 vs 2023

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

+372 added−349 removedSource: 10-K (2024-03-05) vs 10-K (2023-02-13)

Top changes in SOUTHERN FIRST BANCSHARES INC's 2023 10-K

372 paragraphs added · 349 removed · 281 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

91 edited+40 added−31 removed251 unchanged
Biggest changeWe emphasize a range of lending services, including real estate, commercial, and equity-line consumer loans to individuals and small- to medium-sized businesses and professional firms that are located in or conduct a substantial portion of their business in our market area. Our underwriting standards vary for each type of loan, as described below.
Biggest changeWe offer a full complement of loan services to businesses and individuals. This includes commercial, real estate, and consumer loans. Our underwriting standards vary for each type of loan, as described below. Because loans typically provide higher interest yields than other types of interest-earning assets, we invest a substantial percentage of our earning assets in our loan portfolio.
We believe our risk 8 Table of Contents management structure allows our board and senior management to maintain effective oversight of our risks to ensure that our personnel are following prudent and appropriate risk management practices resulting in strong loan quality and minimal credit losses. Attract Talented Banking Professionals With A “ClientFIRST” Focus.
We believe our risk management structure allows our board and senior management to maintain effective oversight of our risks to ensure 8 Table of Contents that our personnel are following prudent and appropriate risk management practices resulting in strong loan quality and minimal credit losses. Attract Talented Banking Professionals With A “ClientFIRST” Focus.
Management monitors exposure to credit risk from potential concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, as well as concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only 9 Table of Contents periods, etc.), and loans with high loan-to-value ratios.
Management monitors exposure to credit risk from potential concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, as well as concentrations of lending products and practices such as loans 9 Table of Contents that subject borrowers to substantial payment increases (e.g., principal deferral periods, loans with initial interest-only periods, etc.), and loans with high loan-to-value ratios.
Notably, changes include: ● expansion of coordination and information sharing efforts among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements, including the Financial Crimes Enforcement Network (“FinCEN”), the primary federal banking regulators, federal 25 Table of Contents law enforcement agencies, national security agencies, the intelligence community, and financial institutions; ● providing additional penalties with respect to violations of BSA and enhancing the powers of FinCEN; ● significant updates to the beneficial ownership collection rules and the creation of a registry of beneficial ownership which will track the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances; ● improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and ● enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions resulting in certain monetary sanctions to receive up to 30% of the amount that is collected in monetary sanctions as well as increased protections.
Notably, changes include: ● expansion of coordination and information sharing efforts among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements, including the Financial Crimes Enforcement Network (“FinCEN”), the primary federal banking regulators, federal law enforcement agencies, national security agencies, the intelligence community, and financial institutions; ● providing additional penalties with respect to violations of BSA and enhancing the powers of FinCEN; ● significant updates to the beneficial ownership collection rules and the creation of a registry of beneficial ownership which will track the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances; ● improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and 25 Table of Contents ● enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions resulting in certain monetary sanctions to receive up to 30% of the amount that is collected in monetary sanctions as well as increased protections.
The loan operations of the Bank are also subject to federal laws applicable to credit transactions, such as: ● the Truth-In-Lending Act (“TILA”) and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act; ● the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities they serve; ● ECOA and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in any aspect of a credit transaction; ● the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act and Regulation V, as well as the rules and regulations of the FDIC governing the use of consumer reports, provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures; ● the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices; ● the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be 23 Table of Contents provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures; ● The Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”) which mandates a nationwide licensing and registration system for residential mortgage loan originators.
The loan operations of the Bank are also subject to federal laws applicable to credit transactions, such as: ● the Truth-In-Lending Act (“TILA”) and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act; ● the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities they serve; ● ECOA and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in any aspect of a credit transaction; ● the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act and Regulation V, as well as the rules and regulations of the FDIC governing the use of consumer reports, provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures; ● the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices; ● the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures; ● The Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”) which mandates a nationwide licensing and registration system for residential mortgage loan originators.
The SAFE Act also prohibits individuals from engaging in the business of a residential mortgage loan originator without first obtaining and maintaining annually registration as either a federal or state licensed mortgage loan originator; ● The Homeowners Protection Act, or the PMI Cancellation Act, provides requirements relating to private mortgage insurance on residential mortgages, including the cancelation and termination of PMI, disclosure and notification requirements, and the requirement to return unearned premiums; ● The Fair Housing Act prohibits discrimination in all aspects of residential real-estate related transactions based on race or color, national origin, religion, sex, and other prohibited factors; ● The Servicemembers Civil Relief Act and Military Lending Act, providing certain protections for servicemembers, members of the military, and their respective spouses, dependents and others; and ● Section 106(c)(5) of the Housing and Urban Development Act requires making home ownership available to eligible homeowners.
The SAFE Act also prohibits 23 Table of Contents individuals from engaging in the business of a residential mortgage loan originator without first obtaining and maintaining annually registration as either a federal or state licensed mortgage loan originator; ● The Homeowners Protection Act, or the PMI Cancellation Act, provides requirements relating to private mortgage insurance on residential mortgages, including the cancelation and termination of PMI, disclosure and notification requirements, and the requirement to return unearned premiums; ● The Fair Housing Act prohibits discrimination in all aspects of residential real-estate related transactions based on race or color, national origin, religion, sex, and other prohibited factors; ● The Servicemembers Civil Relief Act and Military Lending Act, providing certain protections for servicemembers, members of the military, and their respective spouses, dependents and others; and ● Section 106(c)(5) of the Housing and Urban Development Act requires making home ownership available to eligible homeowners.
The Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank Act was signed into law in July 2010 and impacts financial institutions in numerous ways, including: ● The creation of a Financial Stability Oversight Council responsible for monitoring and managing systemic risk, ● Granting additional authority to the Board of Governors of the Federal Reserve (the “Federal Reserve”) to regulate certain types of nonbank financial companies, ● Granting new authority to the FDIC as liquidator and receiver, ● Changing the manner in which deposit insurance assessments are made, ● Requiring regulators to modify capital standards, ● Establishing the Consumer Financial Protection Bureau (the “CFPB”), ● Capping interchange fees that banks charge merchants for debit card transactions, ● Imposing more stringent requirements on mortgage lenders, and ● Limiting banks’ proprietary trading activities.
The Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank Act was signed into law in July 2010 and impacts financial institutions in numerous ways, including: ● The creation of a Financial Stability Oversight Council responsible for monitoring and managing systemic risk, ● Granting additional authority to the Board of Governors of the Federal Reserve (the “Federal Reserve”) to regulate certain types of nonbank financial companies, ● Granting new authority to the FDIC as liquidator and receiver, ● Changing the manner in which deposit insurance assessments are made, ● Requiring regulators to modify capital standards, ● Establishing the Consumer Financial Protection Bureau (the “CFPB”), ● Capping interchange fees that banks charge merchants for debit card transactions, ● Imposing more stringent requirements on mortgage lenders, and 13 Table of Contents ● Limiting banks’ proprietary trading activities.
These executives lead a team of 26 additional senior team members which we believe compares favorably to any community bank management team assembled in South Carolina. R. Arthur “Art” Seaver, Jr . has served as the Chief Executive Officer of our Company and our Bank since 1999. He has over 35 years of banking experience. From 1986 until 1992, Mr.
These executives lead a team of 28 additional senior team members which we believe compares favorably to any community bank management team assembled in South Carolina. R. Arthur “Art” Seaver, Jr . has served as the Chief Executive Officer of our Company and our Bank since 1999. He has over 35 years of banking experience. From 1986 until 1992, Mr.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, to avoid receivership of its insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” within the terms of any capital restoration plan filed by such subsidiary with its appropriate federal 17 Table of Contents banking agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, to avoid receivership of its insured depository institution subsidiary, a bank holding company is required to guarantee the compliance of any insured depository institution subsidiary that may become “undercapitalized” within the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency up to the lesser of (i) an amount equal to 5% of the institution’s total assets at the time the institution became undercapitalized, or (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan.
We obtain a security interest in real estate whenever possible, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. At December 31, 2022, loans secured by first or second mortgages on commercial and consumer real estate made up approximately 84.8% of our loan portfolio.
We obtain a security interest in real estate whenever possible, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. At December 31, 2023, loans secured by first or second mortgages on commercial and consumer real estate made up approximately 84.8% of our loan portfolio.
(2) The total market deposits data displayed are as of June 30, 2022 as reported by the FDIC. Greenville. The city of Greenville is located in Greenville County, South Carolina approximately midway between Atlanta and Charlotte on the heavily traveled I-85 business corridor.
(2) The total market deposits data displayed are as of June 30, 2023 as reported by the FDIC. Greenville. The city of Greenville is located in Greenville County, South Carolina approximately midway between Atlanta and Charlotte on the heavily traveled I-85 business corridor.
In response to the COVID-19 pandemic, in 2020, the Federal Open Market Committee (“FOMC”) reduced the targeted federal funds interest rate range to 0.0% to 0.25%; however, due in part to rising inflation, throughout 2022 the target federal funds rate increased to between 4.25% and 4.50%. Incentive Compensation.
In response to the COVID-19 pandemic, in 2020, the Federal Open Market Committee (“FOMC”) reduced the targeted federal funds interest rate range to 0.0% to 0.25%; however, due in part to rising inflation, throughout 2022 the target federal funds rate increased to between 4.25% and 4.50%. Throughout 2023, the target federal funds rate increased to 5.50%. Incentive Compensation.
We do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future. As of December 31, 2022, the Bank was well-capitalized, as defined by FDIC regulations.
We do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future. As of December 31, 2023, the Bank was well-capitalized, as defined by FDIC regulations.
Board and the FDIC regulate or monitor virtually all areas of the Bank’s operations, including; ● security devices and procedures; ● adequacy of capitalization and loss reserves; ● loans; ● investments; ● borrowings; ● deposits; ● mergers; ● issuances of securities; ● payment of dividends; ● interest rates payable on deposits; ● interest rates or fees chargeable on loans; ● establishment of branches; ● corporate reorganizations; ● maintenance of books and records; and ● adequacy of staff training to carry on safe lending and deposit gathering practices.
Board and the FDIC regulate or monitor virtually all areas of the Bank’s operations, including; ● security devices and procedures; 18 Table of Contents ● adequacy of capitalization and loss reserves; ● loans; ● investments; ● borrowings; ● deposits; ● mergers; ● issuances of securities; ● payment of dividends; ● interest rates payable on deposits; ● interest rates or fees chargeable on loans; ● establishment of branches; ● corporate reorganizations; ● maintenance of books and records; and ● adequacy of staff training to carry on safe lending and deposit gathering practices.
As of December 31, 2022, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III rule requirements to be well-capitalized. Acquisition Activity The primary purpose of a bank holding company is to control and manage banks.
As of December 31, 2023, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III rule requirements to be well-capitalized. Acquisition Activity The primary purpose of a bank holding company is to control and manage banks.
A well-capitalized institution (i) has a total risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-based capital ratio of 8% or greater, (iii) has a common equity Tier 1 risk-based capital ratio of 6.5% or greater, (iv) has a leverage capital ratio of 5% or greater, and (v) is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. 19 Table of Contents ● Adequately Capitalized — The institution meets the required minimum level for each relevant capital measure.
A well-capitalized institution (i) has a total risk-based capital ratio of 10% or greater, (ii) has a Tier 1 risk-based capital ratio of 8% or greater, (iii) has a common equity Tier 1 risk-based capital ratio of 6.5% or greater, (iv) has a leverage capital ratio of 5% or greater, and (v) is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure. ● Adequately Capitalized — The institution meets the required minimum level for each relevant capital measure.
We attempt to reduce credit risk in the commercial real estate portfolio by emphasizing loans on owner-occupied office and retail buildings where the loan-to-value ratio, established by independent appraisals, does not exceed 85%. We also generally require that a borrower’s cash flow exceeds 115% of monthly debt service obligations.
We attempt to reduce credit risk in the commercial real estate portfolio by emphasizing loans on owner-occupied office and retail buildings where the loan-to-value ratio, established by independent appraisals, does not exceed 85%. We also generally require that 10 Table of Contents a borrower’s cash flow exceeds 115% of monthly debt service obligations.
Any extension of credit to an insider (i) must be made on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unrelated third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.
Any extension of credit to an insider (i) must be made on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable 21 Table of Contents transactions with unrelated third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.
More stringent requirements are imposed on “advanced approaches” banking organizations-those organizations with $250 billion or more in total consolidated assets, $10 billion or more in total foreign exposures, or that have opted in to the Basel II capital regime.
More stringent requirements are imposed on “advanced approaches” banking organizations-those organizations with $250 billion or more in total consolidated assets, $10 billion or more in total foreign exposures, or that have opted into the Basel II capital regime.
There are many provisions in the Dodd-Frank Act mandating regulators to adopt new regulations and conduct studies upon which future regulation may be based. While some have been issued, many remain to be issued. Governmental 13 Table of Contents intervention and new regulations could materially and adversely affect our business, financial condition and results of operations.
There are many provisions in the Dodd-Frank Act mandating regulators to adopt new regulations and conduct studies upon which future regulation may be based. While some have been issued, many remain to be issued. Governmental intervention and new regulations could materially and adversely affect our business, financial condition and results of operations.
In addition, since the Company is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, its ability to pay dividends depends on the ability of the Bank to pay dividends to it, which is also subject to regulatory restrictions as described below in “Southern First Bank – Dividends.” 18 Table of Contents South Carolina State Regulation.
In addition, since the Company is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, its ability to pay dividends depends on the ability of the Bank to pay dividends to it, which is also subject to regulatory restrictions as described below in “Southern First Bank – Dividends.” South Carolina State Regulation.
The SEC has completed the bulk (although not all) 27 Table of Contents of the rulemaking necessary to implement these provisions. However, on October 14, 2021, the SEC signaled a renewed interest in this rulemaking initiative by re-opening the comment period on a proposed rule issued originally in 2015 regarding clawbacks of incentive-based executive compensation.
The SEC has completed the bulk (although not all) of the rulemaking necessary to implement these provisions. However, on October 14, 2021, the SEC signaled a renewed interest in this rulemaking initiative by re-opening the comment period on a proposed rule issued originally in 2015 regarding clawbacks of incentive-based executive compensation.
If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications.
If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file 24 Table of Contents a suspicious activity report and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications.
We believe that our officers’ and directors’ experience and local market knowledge are valuable assets and will enable them to guide us successfully in the future. In addition, we believe that we have assembled a group of highly talented employees by being an employer of choice in the markets we serve.
We believe that 7 Table of Contents our officers’ and directors’ experience and local market knowledge are valuable assets and will enable them to guide us successfully in the future. In addition, we believe that we have assembled a group of highly talented employees by being an employer of choice in the markets we serve.
A significantly undercapitalized institution (i) has a total risk-based capital ratio of less than 6%, (ii) has a Tier 1 risk-based capital ratio of less than 4%, (iii) has a common equity Tier 1 risk-based capital ratio of less than 3% or greater, or (iv) has a leverage capital ratio of less than 3%. ● Critically Undercapitalized — The institution fails to meet a critical capital level set by the appropriate federal banking agency.
A significantly undercapitalized institution (i) has a total risk-based capital ratio of less than 6%, (ii) has a Tier 1 risk-based capital ratio of less than 4%, (iii) has a common equity Tier 1 risk-based capital ratio of less than 3% or greater, or (iv) has a leverage capital ratio of less than 3%. 19 Table of Contents ● Critically Undercapitalized — The institution fails to meet a critical capital level set by the appropriate federal banking agency.
We employed a total of 293 FTE employees as of December 31, 2022. Our employees are skilled in the areas of banking, information technology, management, sales, advertising and marketing, among others. We strive to provide an “umbrella for great talent,” characterized by a culture of transparency and collaboration which permeates all levels of the organization.
We employed a total of 296 FTE employees as of December 31, 2023. Our employees are skilled in the areas of banking, information technology, management, sales, advertising and marketing, among others. We strive to provide an “umbrella for great talent,” characterized by a culture of transparency and collaboration which permeates all levels of the organization.
Seaver, Hurst, Dowling, Aiken and Ms. King, our executive management team consists of 15 individuals who bring an average of 28 years of experience in the banking industry. The management team is complemented by our dedicated board of directors with extensive local market knowledge and a wide range of experience including accounting, business, banking, manufacturing, insurance, management and finance.
Seaver, Hurst, Borrmann, Aiken and Ms. King, our executive management team consists of 14 individuals who bring an average of 28 years of experience in the banking industry. The management team is complemented by our dedicated board of directors with extensive local market knowledge and a wide range of experience including accounting, business, banking, manufacturing, insurance, management and finance.
At December 31, 2022, our individual residential real estate loans ranged in size from $3,000 to $5.6 million, with an average loan size of approximately $470,000. Generally, we limit the loan-to-value ratio on our consumer real estate loans to 85%. We offer fixed and adjustable rate consumer real estate loans with terms of up to 30 years.
At December 31, 2023, our individual residential real estate loans ranged in size from $3,000 to $5.6 million, with an average loan size of approximately $472,000. Generally, we limit the loan-to-value ratio on our consumer real estate loans to 85%. We offer fixed and adjustable rate consumer real estate loans with terms of up to 30 years.
Home equity lines of credit typically have terms of ten years or less. We generally limit the extension of credit to 90% of the market value of each property, although we may extend up to 100% of the market value. ● Other Consumer Loans.
Home equity lines of credit typically have terms of ten years or less. We generally limit the extension of credit to 90% of the market value of each property, although we may extend up to 100% of the market value. 11 Table of Contents ● Other Consumer Loans.
By focusing on this client base and by serving each client with a consistent relationship team of bankers, we have generated a loan portfolio with larger average loan amounts than we believe is typical for a community bank. As of December 31, 2022, our average loan size was approximately $350,000.
By focusing on this client base and by serving each client with a consistent relationship team of bankers, we have generated a loan portfolio with larger average loan amounts than we believe is typical for a community bank. As of December 31, 2023, our average loan size was approximately $375,000.
However, the Federal 22 Table of Contents Reserve did not join the proposed rulemaking. In May 2020, the OCC issued its final CRA rule, which was later rescinded in December 2021, replacing it with a rule based on the rules adopted jointly by the federal banking agencies in 1995, as amended.
However, the Federal Reserve did not join the proposed rulemaking. In May 2020, the OCC issued its final CRA rule, which was later rescinded in December 2021, replacing it with a rule based on the rules adopted jointly by the federal banking agencies in 1995, as amended.
Experienced Management Team, Dedicated Board of Directors and Talented Employees. Our senior management team is led by R. Arthur Seaver, Jr., Calvin C. Hurst, Michael D. Dowling, William M. Aiken, and Silvia T. King, and whose biographies are included below.
Experienced Management Team, Dedicated Board of Directors and Talented Employees. Our senior management team is led by R. Arthur Seaver, Jr., Calvin C. Hurst, D. Andrew Borrmann, William M. Aiken, and Silvia T. King, and whose biographies are included below.
Thus, if payment of such a management fee or the making of such would cause a bank to become undercapitalized, it could not pay a management fee or dividend to the bank holding company. As of December 31, 2022, the Bank was deemed to be “well capitalized.” 20 Table of Contents Standards for Safety and Soundness.
Thus, if payment of such a management fee or the making of such would cause a bank to become undercapitalized, it could not pay a management fee or dividend to the bank holding company. As of December 31, 2023, the Bank was deemed to be “well capitalized.” Standards for Safety and Soundness.
On December 22, 2022, the federal banking agencies issued a revised interagency statement extending the temporary relief from such enforcement, which will expire on the sooner of January 1, 2024, or the effective date of a final Federal Reserve rule having a revision to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of a bank.
On December 22, 2022, the federal banking agencies issued a revised interagency statement extending the temporary relief from such enforcement, which was set to expire on January 1, 2024; however, on December 15, 2023, the federal banking agencies again issued a revised interagency statement extending the temporary relief from such enforcement which will expire the sooner of January 1, 2025, or the effective date of a final Federal Reserve rule having a revision to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of a bank.
Based on the Bank’s loan portfolio as of December 31, 2022, it did not exceed the 300% and 100% guidelines for commercial real estate loans or construction and land development loans. The Bank will continue to monitor its portfolio to manage this increased risk.
Based on the Bank’s loan portfolio as of December 31, 2023, it did not exceed the 300% and 100% guidelines for commercial real estate loans or construction and land development loans. The Bank will continue to monitor its portfolio to manage this increased risk. 28 Table of Contents
We also offer home equity lines of credit. At December 31, 2022, our individual home equity lines of credit ranged in size from $1,000 to $1.4 million, with an average of approximately $85,000. Our underwriting criteria and the risks associated with home equity loans and lines of credit are generally the same as those for first mortgage loans.
We also offer home equity lines of credit. At December 31, 2023, our individual home equity lines of credit ranged in size from $1,000 to $1.8 million, with an average of approximately $86,000. Our underwriting criteria and the risks associated with home equity loans and lines of credit are generally the same as those for first mortgage loans.
Greensboro, along with Winston-Salem and High Point, is commonly referred to as the Triad region of North Carolina and is home to companies such as Honda Aircraft, Lincoln Financial Group and Volvo Trucks of North America. The median household income for the Greensboro-High Point MSA was approximately $57,908 for 2021. Charlotte .
Greensboro, along with Winston-Salem and High Point, is commonly referred to as the Triad region of North Carolina and is home to companies such as Honda Aircraft, Lincoln Financial Group and Volvo Trucks of North America. The median household income for the Greensboro-High Point MSA was approximately $60,271 for 2022. Charlotte .
We offer adjustable and fixed rate construction real estate loans for commercial and consumer projects, typically to builders and developers and to consumers who wish to build their own homes. At December 31, 2022, total commercial and consumer construction loans amounted to $190.1 million, or 5.9% of our loan portfolio.
We offer adjustable and fixed rate construction real estate loans for commercial and consumer projects, typically to builders and developers and to consumers who wish to build their own homes. At December 31, 2023, total commercial and consumer construction loans amounted to $214.0 million, or 5.9% of our loan portfolio.
We offer a full range of deposit services, including checking accounts, commercial checking accounts, savings accounts, and other time deposits of various types, ranging from daily money market accounts to long-term certificates of deposit. At December 31, 2022, we had $236.2 million in out-of-market, or wholesale, certificates of deposits.
We offer a full range of deposit services, including checking accounts, commercial checking accounts, savings accounts, and other time deposits of various types, ranging from daily money market accounts to long-term certificates of deposit. At December 31, 2023, we had $379.4 million in out-of-market, or wholesale, certificates of deposits.
Based upon the capitalization of the Bank at December 31, 2022, the maximum amount we could lend to one borrower was $55.0 million. However, to mitigate concentration risk, our internal lending limit at December 31, 2022 was $38.5 million and may vary based on our assessment of the lending relationship.
Based upon the capitalization of the Bank at December 31, 2023, the maximum amount we could lend to one borrower was $58.5 million. However, to mitigate concentration risk, our internal lending limit at December 31, 2023 was $41.0 million and may vary based on our assessment of the lending relationship.
Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include: ● factoring accounts receivable; ● making, acquiring, brokering or servicing loans and usual related activities; 16 Table of Contents ● leasing personal or real property; ● operating a non-bank depository institution, such as a savings association; ● trust company functions; ● financial and investment advisory activities; ● conducting discount securities brokerage activities; ● underwriting and dealing in government obligations and money market instruments; ● providing specified management consulting and counseling activities; ● performing selected data processing services and support services; ● acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and ● performing selected insurance underwriting activities.
Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include: ● factoring accounts receivable; ● making, acquiring, brokering or servicing loans and usual related activities; ● leasing personal or real property; ● operating a non-bank depository institution, such as a savings association; ● trust company functions; ● financial and investment advisory activities; ● conducting discount securities brokerage activities; ● underwriting and dealing in government obligations and money market instruments; ● providing specified management consulting and counseling activities; ● performing selected data processing services and support services; ● acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and ● performing selected insurance underwriting activities. 16 Table of Contents As a bank holding company we also can elect to be treated as a “financial holding company,” which would allow us to engage in a broader array of activities.
At December 31, 2022, our consumer or residential construction loans ranged in size from approximately $20,000 to $2.4 million, with an average loan size of approximately $468,000. The duration of our construction loans generally is limited to 18 months, although payments may be structured on a longer amortization basis.
At December 31, 2023, our consumer or residential construction loans ranged in size from approximately $18,000 to $3.2 million, with an average loan size of approximately $705,000. The duration of our construction loans generally is limited to 18 months, although payments may be structured on a longer amortization basis.
The median household income for the Charleston-North Charleston MSA was approximately $72,719 for 2021. One of our retail offices in the Charleston market is located in the city of Mount Pleasant, which is located just north of Charleston in Charleston County and ranks as the fourth largest city in South Carolina. Columbia .
The median household income for the Charleston-North Charleston MSA was approximately $78,927 for 2022. One of our retail offices in the Charleston market is located in the city of Mount Pleasant, which is located just north of Charleston in Charleston County and ranks as the fourth largest city in South Carolina. Columbia .
As a result, our offices average approximately $241.5 million in total deposits. We believe this style of banking allows us to deliver exceptional client service, while achieving lower efficiency ratios relative to certain of our local competitors, as evidenced by our 58.7% efficiency ratio for the year ended December 31, 2022.
As a result, our offices average approximately $250.0 million in total deposits. We believe this style of banking allows us to deliver exceptional client service, while achieving lower efficiency ratios relative to certain of our local competitors, as evidenced by our 78.7% efficiency ratio for the year ended December 31, 2023.
Raleigh is the state capital and is home to North Carolina State University and is part of the Research Triangle area, together with Durham, North Carolina (home of Duke University) and Chapel Hill, North Carolina (home of the University of North Carolina at Chapel Hill). The median household income for the Raleigh-Cary MSA was approximately $85,303 for 2021. Greensboro .
Raleigh is the state capital and is home to North Carolina State University and is part of the Research Triangle area, together with Durham, North Carolina (home of Duke University) and Chapel Hill, North Carolina (home of the University of North Carolina at Chapel Hill). The median household income for the Raleigh-Cary MSA was approximately $92,739 for 2022. Greensboro .
The CAST committee, which is comprised of a group of our senior commercial lenders, chief banking officer, and chief executive officer, has pre-determined lending limits, and any loans in excess of this lending limit will be submitted for approval by the finance committee of our board or by the full board.
The CAST committee, which is comprised of a group of our senior commercial lenders, senior credit administrators, chief risk officer, president, and chief executive officer, has pre-determined lending limits, and any loans in excess of this lending limit will be submitted for approval by our full board.
In addition to loans secured by real estate, our loan portfolio includes commercial business loans and other consumer loans which comprised 14.3% and 0.9%, respectively, of our total loan portfolio at December 31, 2022. Interest rates for all real estate loan categories may be fixed or adjustable, and will more likely be fixed for shorter-term loans.
In addition to loans secured by real estate, our loan portfolio includes commercial business loans and other consumer loans which comprised 13.9% and 1.4%, respectively, of our total loan portfolio at December 31, 2023. Interest rates for all real estate loan categories may be fixed or adjustable, and will more likely be fixed for shorter-term loans.
Employees At December 31, 2022, we employed a total of 293 FTE employees. We provide our full-time employees and certain part-time employees with a comprehensive program of benefits, including medical benefits, life insurance, long-term disability coverage and a 401(k) plan. Our employees are not represented by a collective bargaining agreement. Management considers its employee relations to be excellent.
We provide our full-time employees and certain part-time employees with a comprehensive program of benefits, including medical benefits, life insurance, long-term disability coverage and a 401(k) plan. Our employees are not represented by a collective bargaining agreement. Management considers its employee relations to be excellent.
The Charleston-North Charleston MSA is the third most populous market in the state with an estimated population of 813,052 residents as reported in March 2022. Charleston is home to the deepest port in the Southeast and boasts top companies in the aerospace, biomedical and technology fields such as Boeing, the Medical University of South Carolina (MUSC) and Blackbaud.
The Charleston-North Charleston MSA is the third most populous market in the state with an estimated population of 830,529 for 2022. Charleston is home to the deepest port in the Southeast and boasts top companies in the aerospace, biomedical and technology fields such as Boeing, the Medical University of South Carolina (MUSC) and Blackbaud.
We believe that our current mobile banking, on-line banking and cash management offerings are industry-leading solutions amongst community banks. During 2022, 71% of deposits were acquired through our office network, 23% came through the commercial remote deposit capture channel and the remaining 6% came through consumer mobile deposits.
We believe that our current mobile banking, on-line banking and cash management offerings are industry-leading solutions amongst community banks. During 2023, 68% of deposits were acquired through our office network, 24% came through the commercial remote deposit capture channel and the remaining 8% came through consumer mobile deposits.
Commercial construction loans represented $109.7 million, or 3.4%, of our total loan portfolio, while consumer construction loans represented $80.4 million, or 2.5% of our total loan portfolio. At December 31, 2022, our commercial construction real estate loans ranged in size from approximately $15,000 to $9.0 million, with an average loan balance of approximately $1.3 million.
Commercial construction loans represented $150.7 million, or 4.2%, of our total loan portfolio, while consumer construction loans represented $63.3 million, or 1.7% of our total loan portfolio. At December 31, 2023, our commercial construction real estate loans ranged in size from approximately $15,000 to $13.0 million, with an average loan balance of approximately $2.1 million.
The city of Charlotte is the largest city in the state and is located in Mecklenburg County, North Carolina. The Charlotte-Concord-Gastonia MSA is the most populous market in the state of North Carolina with an estimated population of 2.7 million residents as reported in March 2022.
The city of Charlotte is the largest city in the state and is located in Mecklenburg County, North Carolina. The Charlotte-Concord-Gastonia MSA is the most populous market in the state of North Carolina with an estimated population of 2.75 million for 2022.
The Bank is forbidden to purchase low quality assets from an affiliate. 21 Table of Contents Section 23B of the Federal Reserve Act, among other things, prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.
Section 23B of the Federal Reserve Act, among other things, prohibits an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.
As of December 31, 2022, we had originated three loans utilizing government enhancements and over 20 loans engaged in state-based small business partnerships. ● Consumer Real Estate Loans and Home Equity Loans. At December 31, 2022 consumer real estate loans (other than construction loans) amounted to $1.1 billion, or 34.0% of our loan portfolio.
As of December 31, 2023, we had originated seven loans utilizing government enhancements and over 30 loans engaged in state-based small business partnerships. ● Consumer Real Estate Loans and Home Equity Loans. At December 31, 2023 consumer real estate loans (other than construction loans) amounted to $1.27 billion, or 35.1% of our loan portfolio.
Atlanta is the state capital of, and largest city in, Georgia and is the world headquarters of corporations such as Coca-Cola, Home Depot, UPS, Delta Airlines and Turner Broadcasting. The median household income for the Atlanta-Sandy Springs-Alpharetta MSA is $77,589 for 2021.
Atlanta is the state capital of, and largest city in, Georgia and is the world headquarters of corporations such as 6 Table of Contents Coca-Cola, Home Depot, UPS, Delta Airlines and Turner Broadcasting. The median household income for the Atlanta-Sandy Springs-Alpharetta MSA is $84,876 for 2022.
The scope and content of federal bank regulatory agencies’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. In 2016, federal agencies proposed regulations which could significantly change the regulation of incentive compensation programs at financial institutions. The proposal would create four tiers of institutions based on asset size.
The scope and content of federal bank regulatory agencies’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. In 2016, federal agencies proposed regulations which could 27 Table of Contents significantly change the regulation of incentive compensation programs at financial institutions.
The final rules direct the stock exchanges to establish listing standards requiring listed companies to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers and to satisfy related disclosure obligations.
The final rules directed the stock exchanges to establish listing standards requiring listed companies to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers and to satisfy related disclosure obligations. As of December 1, 2023, the final clawback rules from The NASDAQ Stock Market were effective.
If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.
Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.
Institutions in the top two tiers would be subject to rules much more detailed and proscriptive than are currently in effect. If interpreted aggressively by the regulators, the proposed rules could be used to prevent, as a practical matter, larger institutions from engaging in certain lines of business where substantial commission and bonus pool arrangements are the norm.
If interpreted aggressively by the regulators, the proposed rules could be used to prevent, as a practical matter, larger institutions from engaging in certain lines of business where substantial commission and bonus pool arrangements are the norm.
The city of Greensboro is the third largest city in North Carolina and is located in Guilford County, North Carolina. The Greensboro-High Point MSA is one of the most populous markets in the state of North Carolina with an estimated population of 778,848 thousand residents as reported in March 2022.
The city of Greensboro is the third largest city in North Carolina and is located in Guilford County, North Carolina. The Greensboro-High Point MSA is one of the most populous markets in the state of North Carolina with an estimated population of 784,101 for 2022.
Included in the consumer real estate loans was $931.3 million, or 28.5% of our loan portfolio, in first and second mortgages on individuals’ homes, while home equity loans represented $179.3 million, or 5.5% of our total loan portfolio.
Included in the consumer real estate loans was $1.08 billion, or 30.0% of our loan portfolio, in first and second mortgages on individuals’ homes, while home equity loans represented $183.0 million, or 5.1% of our total loan portfolio.
As of June 30, 2022, the most recent date for which market data is available, there were 36 financial institutions in our primary market of Greenville County, 26 financial institutions in the Columbia market, 34 financial institutions in the Charleston market, 37 financial institutions in the Raleigh market, 25 financial institutions in the Greensboro market, 46 financial institutions in the Charlotte market, and 83 financial institutions in the Atlanta market.
As of June 30, 2023, the most recent date for which market data is available, there were 39 financial institutions in our primary market of Greenville County, 26 financial institutions in the Columbia market, 35 financial institutions in the Charleston market, 36 financial institutions in the Raleigh market, 24 financial institutions in the Greensboro market, 49 financial institutions in the Charlotte market, and 82 financial institutions in the Atlanta market.
The 2.5% capital conservation buffer effectively results in the following minimum capital ratios (taking into account the capital conservation buffer): (i) a CET1 capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. 14 Table of Contents As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted the credit impairment model, the Current Expected Credit Loss, or CECL, during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total).
As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted the credit impairment model, the Current Expected Credit Loss, or CECL, during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total).
The Bank is a commercial bank with eight retail offices located in the Greenville, Columbia, and Charleston markets of South Carolina, three retail offices in the Raleigh, Greensboro, and Charlotte markets of North Carolina and one retail office in Atlanta, Georgia.
The Bank is a commercial bank with eight retail offices located in the Greenville, Columbia, and Charleston markets of South Carolina, three retail offices in the Raleigh, Greensboro, and Charlotte markets of North Carolina and one retail office in Atlanta, Georgia. In addition, we opened our Dream Mortgage Center, a loan production office, located in Columbia, South Carolina during 2023.
The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans. Insurance of Accounts and Regulation by the FDIC. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks to $250,000 per account.
The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans. Insurance of Accounts and Regulation by the FDIC. The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC.
As of December 31, 2022, our executive officers and board of directors 7 Table of Contents owned an aggregate of 612,503 shares of our common stock, including options to purchase shares of our common stock, which represented approximately 7.59% of the fully-diluted amount of our common stock outstanding.
As of December 31, 2023, our executive officers and board of directors owned an aggregate of 646,142 shares of our common stock, including options to purchase shares of our common stock, which represented approximately 8.00% of the fully-diluted amount of our common stock outstanding.
The CFPB has issued a number of significant rules that impact nearly every aspect of the lifecycle of consumer financial products and services, including rules regarding residential mortgage loans. These rules implement Dodd-Frank Act amendments to ECOA, TILA and RESPA.
The CFPB has issued a number of significant rules that impact nearly every aspect of the lifecycle of consumer financial products and services, including rules regarding residential mortgage loans. These rules implement Dodd-Frank Act amendments to ECOA, TILA and RESPA. The CFPB continued its scrutiny of so called “pay-to-pay” and “junk fee” regimes, proposing rules related to credit card penalties.
At December 31, 2022, 11 Table of Contents consumer loans other than real estate amounted to $29.1 million, or 0.9% of our loan portfolio, and ranged in size from $1,000 to $6.1 million, with an average loan size of approximately $20,000. Our installment loans typically amortize over periods up to 60 months.
At December 31, 2023, consumer loans other than real estate amounted to $48.8 million, or 1.4% of our loan portfolio, and ranged in size from $1,000 to $17.2 million, with an average loan size of approximately $35,000. Our installment loans typically amortize over periods up to 60 months.
The remainder of our commercial real estate loan portfolio, $612.9 million in loans or 29.8% of the commercial loan portfolio, were owner occupied. Owner occupied loans represented 18.7% of our total loan portfolio. At December 31, 2022, our individual commercial real estate loans ranged in size from approximately $15,000 to $22.0 million, with an average loan size of approximately $802,000.
The remainder of our commercial real estate loan portfolio, $631.7 million in loans or 28.4% of the commercial loan portfolio, were owner occupied. Owner occupied loans represented 17.5% of our total loan portfolio. At December 31, 2023, our individual commercial real estate loans ranged in size from approximately $15,000 to $21.0 million, with an average loan size of approximately $850,000.
At December 31, 2022, commercial owner occupied and non-owner occupied real estate loans (other than construction loans) amounted to $1.48 billion, or 45.1% of our loan portfolio. Of our commercial real estate loan portfolio, $862.6 million in loans were non-owner occupied properties, representing 42.0% of our commercial loan portfolio and 26.3% of our total loan portfolio.
At December 31, 2023, commercial owner occupied and non-owner occupied real estate loans (other than construction loans) amounted to $1.57 billion, or 43.7% of our loan portfolio. Of our commercial real estate loan portfolio, $942.5 million in loans were non-owner occupied properties, representing 42.4% of our commercial loan portfolio and 26.2% of our total loan portfolio.
At December 31, 2022, commercial business loans amounted to $468.1 million, or 14.3% of our loan portfolio, and ranged in size from approximately $1,000 to $12.8 million, with an average loan size of approximately $277,000.
At December 31, 2023, commercial business loans amounted to $500.2 million, or 13.9% of our loan portfolio, and ranged in size from approximately $1,000 to $12.4 million, with an average loan size of approximately $282,000.
At the same time, we have strived to maintain a diversified loan portfolio and limit the amount of our loans to any single client. As of December 31, 2022, our ten largest client loan relationships represented approximately $299.6 million, or 9.15%, of our loan portfolio. Loan Approval . Certain credit risks are inherent in making loans.
At the same time, we have strived to maintain a diversified loan portfolio and limit the amount of our loans to any single client. As of December 31, 2023, our ten largest client loan relationships represented approximately $314.1 million, or 8.72%, of our loan portfolio.
The Greenville-Anderson MSA is the most populous market in South Carolina with an estimated 940,774 residents as reported in March 2022. The median household income for the Greenville-Anderson-Mauldin MSA was $62,265 for 2021.
The Greenville-Anderson MSA is the most populous market in South Carolina with an estimated population of 958,958 as reported for2022. The median household income for the Greenville-Anderson-Mauldin MSA was $65,681 for 2022.
FHA prohibits discrimination in all aspects of residential real-estate related transactions based on prohibited factors, including race or color, national origin, religion, sex, familial status, and handicap.
While this OCC guidance does not apply to the Bank explicitly, it represents best practices guidance for the Bank. FHA prohibits discrimination in all aspects of residential real-estate related transactions based on prohibited factors, including race or color, national origin, religion, sex, familial status, and handicap.
Institutions classified as higher risk pay assessments at higher rates than institutions that pose a lower risk. In addition to ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances. In addition to the ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances.
The Bank’s assessment rates are currently based on its risk classification (i.e., the level of risk it poses to the FDIC’s deposit insurance fund). Institutions classified as higher risk pay assessments at higher rates than institutions that pose a lower risk. In addition to ordinary assessments described above, the FDIC has the ability to impose special assessments in certain instances.
Hurst is a 2005 graduate of Furman University, with a Bachelor’s degree in Business Administration and Economics. Michael D. Dowling has served as an Executive Vice President and the Chief Financial Officer of our Company and our Bank since 2011 and as Chief Operating Officer since July 2019. He has over 25 years of experience in the banking industry. Mr.
Hurst is a 2005 graduate of Furman University, with a Bachelor’s degree in Business Administration and Economics. D. Andrew Borrmann has served as an Executive Vice President and the Chief Financial Officer of our Company and our Bank since April 2023. From August 2021 to February 2023, Mr.
In addition, the “cross guarantee” provisions of the Federal Deposit Insurance Act (the “FDIA”) require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default.
Further, federal law grants federal bank regulatory authorities’ additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition. 17 Table of Contents In addition, the “cross guarantee” provisions of the Federal Deposit Insurance Act (the “FDIA”) require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default.
In March 2022, FinCEN issued an alert advising increased vigilance for potential Russian Sanctions Evasion Attempts. The Financial Action Task Force (“FATF”) continues to revise the list of high-risk jurisdictions. In October 2022, FATF removed Nicaragua and Pakistan from its lists of Jurisdictions under Increased Monitoring and added the Democratic Republic of the Congo, Mozambique, and Tanzania.
In March 2022, FinCEN issued an alert advising increased vigilance for potential Russian Sanctions Evasion Attempts. Increased FinCEN scrutiny and sanctions against Russian entities continued in 2023. The Financial Action Task Force (“FATF”) continues to revise the list of high-risk jurisdictions.
The median household income for the Charlotte-Concord-Gastonia MSA was approximately $71,041 for 2021. 6 Table of Contents Atlanta . The Atlanta-Sandy Springs-Alpharetta MSA has the eighth largest population in the U.S. with 6.14 million residents as reported in March 2022.
The median household income for the Charlotte-Concord-Gastonia MSA was approximately $77,154 for 2022. Atlanta . The Atlanta-Sandy Springs-Alpharetta MSA has the eighth largest population in the U.S. estimated at 6.22 million for 2022.
The city of Raleigh is the second largest city in the state of North Carolina and is located in Wake County, North Carolina. The Raleigh-Cary MSA is one of the most populous markets in the state with an estimated population of 1.45 million residents as reported in March 2022.
The Raleigh-Cary MSA is one of the most populous markets in the state with an estimated population of 1.48 million for 2022.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe potential losses and costs associated with climate change related risks are difficult to predict and could have a material adverse effect on our business, financial condition and results of operation. 34 Table of Contents We rely on other companies to provide key components of our business infrastructure.
Biggest changeSuch events could also cause downturns in economic and market conditions generally, which could have an adverse effect on our business and financial results. The potential losses and costs associated with climate change related risks are difficult to predict and could have a material adverse effect on our business, financial condition and results of operation.
Our governing documents: ● authorize a class of preferred stock that may be issued in series with terms, including voting rights, established by the board of directors without shareholder approval; ● authorize 10,000,000 shares of common stock and 10,000,000 shares of preferred stock that may be issued by the board of directors without shareholder approval; ● classify our board with staggered three year terms, preventing a change in a majority of the board at any annual meeting; 41 Table of Contents ● require advance notice of proposed nominations for election to the board of directors and business to be conducted at a shareholder meeting; ● grant the board of directors the discretion, when considering whether a proposed merger or similar transaction is in the best interests of the Company and our shareholders, to take into account the effect of the transaction on the employees, clients and suppliers of the Company and upon the communities in which offices of the Company are located, to the extent permitted by South Carolina law; ● provide that the number of directors shall be fixed from time to time by resolution adopted by a majority of the directors then in office, but may not consist of fewer than five nor more than 25 members; and ● provide that no individual who is or becomes a “business competitor” or who is or becomes affiliated with, employed by, or a representative of any individual, corporation, or other entity which the board of directors, after having such matter formally brought to its attention, determines to be in competition with us or any of our subsidiaries (any such individual, corporation, or other entity being a “business competitor”) shall be eligible to serve as a director if the board of directors determines that it would not be in our best interests for such individual to serve as a director (any financial institution having branches or affiliates within Greenville County, South Carolina is presumed to be a business competitor unless the board of directors determines otherwise).
Our governing documents: ● authorize a class of preferred stock that may be issued in series with terms, including voting rights, established by the board of directors without shareholder approval; ● authorize 10,000,000 shares of common stock and 10,000,000 shares of preferred stock that may be issued by the board of directors without shareholder approval; ● classify our board with staggered three year terms, preventing a change in a majority of the board at any annual meeting; ● require advance notice of proposed nominations for election to the board of directors and business to be conducted at a shareholder meeting; ● grant the board of directors the discretion, when considering whether a proposed merger or similar transaction is in the best interests of the Company and our shareholders, to take into account the effect of the transaction on the employees, clients and suppliers of the Company and upon the communities in which offices of the Company are located, to the extent permitted by South Carolina law; ● provide that the number of directors shall be fixed from time to time by resolution adopted by a majority of the directors then in office, but may not consist of fewer than five nor more than 25 members; and ● provide that no individual who is or becomes a “business competitor” or who is or becomes affiliated with, employed by, or a representative of any individual, corporation, or other entity which the board of directors, after 42 Table of Contents having such matter formally brought to its attention, determines to be in competition with us or any of our subsidiaries (any such individual, corporation, or other entity being a “business competitor”) shall be eligible to serve as a director if the board of directors determines that it would not be in our best interests for such individual to serve as a director (any financial institution having branches or affiliates within Greenville County, South Carolina is presumed to be a business competitor unless the board of directors determines otherwise).
We may not be successful in retaining key personnel, and the unexpected loss of services of one or more of our key personnel could have a material adverse effect on our business because of their skill, knowledge of our primary markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel. In particular, Michael D.
We may not be successful in retaining key personnel, and the unexpected loss of services of one or more of our key personnel could have a material adverse effect on our business because of their skill, knowledge of our primary markets, years of industry experience and the difficulty of promptly finding qualified replacement personnel. In particular, D.
Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure could receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans, represent 300% or more of an institution’s 29 Table of Contents total risk-based capital, and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months.
Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure could receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans, represent 300% or more of an institution’s total risk-based capital, and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months.
Furthermore, information security risks for financial institutions have generally increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties.
Furthermore, information security risks for financial institutions have increased in recent years in part because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increasing sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties.
A significant portion of our loan portfolio is secured by real estate, and events that negatively affect the real estate market could hurt our business. As of December 31, 2022, approximately 85% of our loans had real estate as a primary or secondary component of collateral.
A significant portion of our loan portfolio is secured by real estate, and events that negatively affect the real estate market could hurt our business. As of December 31, 2023, approximately 85% of our loans had real estate as a primary or secondary component of collateral.
In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with China and the Russian invasion of Ukraine, all of which may have a destabilizing effect on financial markets and economic activity.
In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with China, the Russian invasion of Ukraine, and the Middle East conflict, all of which may have a destabilizing effect on financial markets and economic activity.
We periodically determine the amount of the allowance based on consideration of several factors, including but not limited to: ● an ongoing review of the quality, mix, and size of our overall loan portfolio; ● our historical loan loss experience; ● evaluation of economic conditions; ● regular reviews of loan delinquencies and loan portfolio quality; 30 Table of Contents ● ongoing review of financial information provided by borrowers; and ● the amount and quality of collateral, including guarantees, securing the loans.
We periodically determine the amount of the allowance based on consideration of several factors, including but not limited to: ● an ongoing review of the quality, mix, and size of our overall loan portfolio; ● our historical loan loss experience; ● evaluation of economic conditions; ● regular reviews of loan delinquencies and loan portfolio quality; ● ongoing review of financial information provided by borrowers; and ● the amount and quality of collateral, including guarantees, securing the loans.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and 28 Table of Contents capital; increases in inflation or interest rates; high unemployment; natural disasters; epidemics and pandemics (such as COVID-19); or a combination of these or other factors.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural disasters; epidemics and pandemics (such as COVID-19); or a combination of these or other factors.
If we are unable to implement, maintain and use such technologies effectively, we may not be able to offer products or achieve cost-efficiencies necessary to compete in the industry. In addition, some of these competitors have fewer regulatory constraints and lower cost structures. We are subject to environmental risks that could result in losses.
If we are unable to implement, maintain and use such technologies effectively, we may not be able to offer products or achieve cost-efficiencies necessary to compete in the industry. In addition, some of these competitors have fewer regulatory constraints and lower cost structures. 34 Table of Contents We are subject to environmental risks that could result in losses.
In March 2020, in response to the COVID-19 pandemic, the Federal Reserve reduced the target Federal Funds rate to between zero and 0.25%; however, due in part to rising inflation, throughout 2022 the target Federal Funds rate increased to between 4.25% and 4.50%.
In March 2020, in response to the COVID-19 pandemic, the Federal Reserve reduced the target Federal Funds rate to between zero and 0.25%; however, due in part to rising inflation, throughout 2022 the target Federal Funds rate increased to between 4.25% and 4.50%. Throughout 2023, the target Federal Funds rate increased to between 5.25% and 5.50%.
Acts of nature, including hurricanes, tornados, earthquakes, fires and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively affect our financial condition. Risks Related to Lending Activities Our loan portfolio contains a number of real estate loans with relatively large balances.
Acts of nature, including hurricanes, tornados, earthquakes, fires and floods, which may cause uninsured damage and other loss of value to real estate that secures these loans, may also negatively affect our financial condition. 29 Table of Contents Risks Related to Lending Activities Our loan portfolio contains a number of real estate loans with relatively large balances.
In addition, the Dodd-Frank Act directs the federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as a source of strength for the institution. Under these requirements, in the future, we could be required to provide financial assistance to the Bank if the Bank experiences financial distress.
In addition, the Dodd-Frank Act directs the federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as a source of strength for the institution. Under these 33 Table of Contents requirements, in the future, we could be required to provide financial assistance to the Bank if the Bank experiences financial distress.
As a result of these limitations and conditions, we may be unable or may fail to pursue, evaluate or complete transactions that might have been strategically or competitively significant. We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities.
As a result of these limitations and conditions, we may be unable or may fail to pursue, evaluate or complete transactions that might have been strategically or competitively significant. 32 Table of Contents We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities.
The measurement of 33 Table of Contents expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter.
The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter.
A deterioration in economic conditions in the United States and our markets could result in an increase 37 Table of Contents 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.
A deterioration in economic conditions in the United States and our markets could result in an 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.
Paying higher deposit rates to maintain or replace these types of deposits could adversely affect our net interest margin and operating results. 38 Table of Contents Risks Related to Our Strategic Plans We are dependent on key individuals and the loss of one or more of these key individuals could curtail our growth and adversely affect our prospects. R.
Paying higher deposit rates to maintain or replace these types of deposits could adversely affect our net interest margin and operating results. Risks Related to Our Strategic Plans We are dependent on key individuals and the loss of one or more of these key individuals could curtail our growth and adversely affect our prospects. R.
However, Congressional committees with jurisdiction over the banking sector have pursued oversight and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other Environmental, Social, and Governance matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight of the COVID-19 pandemic response and economic recovery.
However, Congressional committees with jurisdiction over the banking sector have pursued oversight and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other Environmental, Social, and Governance matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight of pandemic responses and economic recovery.
At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates. An increase (or decrease) in interest rates also requires us to increase (or decrease) the interest rates that we pay on our deposits.
At the same time, the 37 Table of Contents marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates. An increase (or decrease) in interest rates also requires us to increase (or decrease) the interest rates that we pay on our deposits.
Also, as a member of the Federal Home Loan Bank, 31 Table of Contents the Bank must comply with applicable regulations of the Federal Housing Finance Board and the Federal Home Loan Bank. Regulation by these agencies is intended primarily for the protection of our depositors and the deposit insurance fund and not for the benefit of our shareholders.
Also, as a member of the Federal Home Loan Bank, the Bank must comply with applicable regulations of the Federal Housing Finance Board and the Federal Home Loan Bank. Regulation by these agencies is intended primarily for the protection of our depositors and the deposit insurance fund and not for the benefit of our shareholders.
The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgements, settlements, fines, injunctions, restrictions on the way we conduct our business or reputational harm. 42 Table of Contents Item 1B. Unresolved Staff Comments. None.
The results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse judgements, settlements, fines, injunctions, restrictions on the way we conduct our business or reputational harm. Item 1B. Unresolved Staff Comments. None.
Repayment of such loans is generally considered more subject to market risk than residential mortgage loans. Industry experience shows that a portion of loans will become delinquent and a portion of loans will require partial or entire charge-off.
Repayment of such loans is generally considered more subject to market risk than residential mortgage loans. Industry experience shows that a portion of loans will become delinquent and a portion of loans will require partial or entire charge- 30 Table of Contents off.
Treasury to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service.
The federal Financial Crimes Enforcement Network, established by the U.S. Treasury to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service.
With the new Congress taking office in 2023, Republicans gained control of the U.S. House of Representatives, while Democrats retained control of the U.S. Senate. However slim the majorities, though, the net result was a split Congress, which in the past leads to less sweeping policy changes.
In 2023, Republicans gained control of the U.S. House of Representatives, while Democrats retained control of the U.S. Senate. However slim the majorities, though, the net result was a split Congress, which in the past leads to less sweeping policy changes.
Securities litigation could result in substantial costs and divert management’s attention and resources from our normal business. Future sales of our stock by our shareholders or the perception that those sales could occur may cause our stock price to decline.
We could in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources from our normal business. Future sales of our stock by our shareholders or the perception that those sales could occur may cause our stock price to decline.
Arthur Seaver, Jr., our chief executive officer, and Calvin C. Hurst, our president, each have extensive and long-standing ties within our primary market area and substantial experience with our operations, and each has contributed significantly to our growth.
Arthur Seaver, Jr., our chief executive officer, and Calvin C. Hurst, our president, each have extensive and long-standing ties within our primary market area and substantial experience with our operations, and each has contributed 39 Table of Contents significantly to our growth.
Third parties provide key components of our business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections and network access. While we have selected these third party vendors carefully, we do not control their actions.
We rely on other companies to provide key components of our business infrastructure. Third parties provide key components of our business operations such as data processing, recording and monitoring transactions, online banking interfaces and services, internet connections and network access. While we have selected these third-party vendors carefully, we do not control their actions.
Moreover, these types of expansions involve various risks, including: ● the time and costs of evaluating new markets, hiring or retaining experienced local management, and opening new offices and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; ● the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse effects on our results of operations; ● the potential inaccuracy of the estimates and judgments used to evaluate credit, operations, management, and market risks with respect to a target institution; ● incurring the time and expense associated with identifying and evaluating potential merger or acquisition targets and other expansion opportunities and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our existing business; ● the possibility that the expected benefits of a transaction may not materialize in the timeframe expected or at all, or may be costlier to achieve; 39 Table of Contents ● the risk that we may be unsuccessful in attracting and retaining deposits and originating high quality loans in new markets; ● difficulty or unanticipated expense associated with converting the operating systems of an acquired or merged company into ours; ● delay in completing a merger, acquisition or other expansion activities due to litigation, closing conditions or the regulatory approval process; and ● the risk of loss of key employees and clients of the Company or the acquired or merged company.
Moreover, these types of expansions involve various risks, including: ● the time and costs of evaluating new markets, hiring or retaining experienced local management, and opening new offices and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; ● the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse effects on our results of operations; ● the potential inaccuracy of the estimates and judgments used to evaluate credit, operations, management, and market risks with respect to a target institution; ● incurring the time and expense associated with identifying and evaluating potential merger or acquisition targets and other expansion opportunities and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our existing business; ● the possibility that the expected benefits of a transaction may not materialize in the timeframe expected or at all, or may be costlier to achieve; ● the risk that we may be unsuccessful in attracting and retaining deposits and originating high quality loans in new markets; ● difficulty or unanticipated expense associated with converting the operating systems of an acquired or merged company into ours; ● delay in completing a merger, acquisition or other expansion activities due to litigation, closing conditions or the regulatory approval process; and ● the risk of loss of key employees and clients of the Company or the acquired or merged company. 40 Table of Contents There is no assurance that existing branches or future branches, if any, will maintain or achieve deposit levels, loan balances or other operating results necessary to avoid losses or produce profits.
Our level of commercial real estate and multi-family loans represents 261.7% of the Bank’s total risk-based capital at December 31, 2022. In December 2015, the regulatory agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”).
Our level of commercial real estate and multi-family loans represents 271.4% of the Bank’s total risk-based capital at December 31, 2023. In December 2015, the regulatory agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”).
Negative public opinion surrounding the Company and the financial institutions industry generally could damage our reputation and adversely impact our earnings. Reputation risk, or the risk to our business, earnings and capital from negative public opinion surrounding the Company and the financial institutions industry generally, is inherent in our business.
Reputation risk, or the risk to our business, earnings and capital from negative public opinion surrounding the Company and the financial institutions industry generally, is inherent in our business.
Such loans are generally more risky than loans secured by residential real estate or consumer loans because those loans are typically not secured by real estate collateral.
Such loans are generally riskier than loans secured by residential real estate or consumer loans because those loans are typically not secured by real estate collateral.
We may have higher credit losses than we have allowed for in our allowance for credit losses. Our actual loans losses could exceed our allowance for credit losses and therefore our historic allowance for credit losses may not be adequate. As of December 31, 2022, 48.4% of our loan portfolio was secured by commercial real estate.
We may have higher credit losses than we have allowed for in our allowance for credit losses. Our actual loans losses could exceed our allowance for credit losses and therefore our historic allowance for credit losses may not be adequate. As of December 31, 2023, 47.9% of our loan portfolio was secured by commercial real estate.
Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. At December 31, 2022, commercial business loans comprised 14.3% of our total loan portfolio.
Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. At December 31, 2023, commercial business loans comprised 13.9% of our total loan portfolio.
Nevertheless, these investments may prove insufficient and fraudulent activity could result in losses to us or our customers; loss of business and/or customers; damage to our reputation; the incurrence of additional expenses (including the cost of notification to consumers, credit monitoring and forensics, and fees and fines imposed by the card networks); disruption to our business; our inability to grow our online services or other businesses; additional regulatory scrutiny or penalties; or our exposure to civil litigation and possible financial liability any of which could have a material adverse effect on our business, financial condition and results of operations. 35 Table of Contents Our operational or security systems may experience an interruption or breach in security, including as a result of cyber-attacks.
Nevertheless, these investments may prove insufficient and fraudulent activity could result in losses to us or our customers; loss of business and/or customers; damage to our reputation; the incurrence of additional expenses (including the cost of notification to consumers, credit monitoring and forensics, and fees and fines imposed by the card networks); disruption to our business; our inability to grow our online services or other businesses; additional regulatory scrutiny or penalties; or our exposure to civil litigation and possible financial liability any of which could have a material adverse effect on our business, financial condition and results of operations.
We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems, including as a result of cyber-attacks, could result in failures or disruptions in our client relationship management, deposit, loan, and other systems and also the disclosure or misuse of confidential or proprietary information.
Any failure, interruption or breach in security of these systems, including as a result of cyber-attacks, could result in failures or disruptions in our client relationship management, deposit, loan, and other systems and also the disclosure or misuse of confidential or proprietary information.
Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Moreover, in the past, securities class action lawsuits have been instituted against some companies following periods of volatility in the market price of its securities. We could in the future be the target of similar litigation.
Stock price volatility may make it more difficult for you to resell 41 Table of Contents your common stock when you want and at prices you find attractive. Moreover, in the past, securities class action lawsuits have been instituted against some companies following periods of volatility in the market price of its securities.
Commercial real estate loans increase our exposure to credit risk. At December 31, 2022, 48.4% of our loan portfolio was secured by commercial real estate.
Commercial real estate loans increase our exposure to credit risk. At December 31, 2023, 47.9% of our loan portfolio was secured by commercial real estate.
During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations. Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation has continued rising in 2022 at levels not seen for over 40 years.
During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in loan originations. Inflationary pressures and rising prices may affect our results of operations and financial condition.
Dowling, our chief financial officer and chief operating officer, resigned effective February 15, 2023. Leadership transitions can be inherently difficult to manage, and an inadequate transition to a permanent successor may cause disruptions to our business due to, among other things, diverting management’s attention or causing a deterioration in morale.
Andrew Borrmann, our chief financial officer, announced his resignation on February 27, 2024. Leadership transitions can be inherently difficult to manage, and an inadequate transition to a permanent successor may cause disruptions to our business due to, among other things, diverting management’s attention or causing a deterioration in morale.
The prospects for the enactment of major banking reform legislation remain unclear at this time. Moreover, the turnover of the presidential administration resulted in certain changes in the leadership and senior staffs of the federal banking agencies, the CFPB, CFTC, SEC, and the Treasury Department, with certain significant leadership positions yet to be filled, including the Comptroller of the Currency.
Moreover, turnover of the presidential administration in 2020 resulted in certain changes in the leadership and senior staffs of the federal banking agencies, the CFPB, CFTC, SEC, and the Treasury Department, with certain significant leadership positions yet to be permanently filled, including the Comptroller of the Currency.
Any future changes in federal and state laws and regulations, as well as the interpretation and implementation of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations. 32 Table of Contents We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
Any future changes in federal and state laws and regulations, as well as the interpretation and implementation of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations.
As is the case with other similarly situated financial institutions, our profitability will be subject to the fluctuating cost and availability of funds, changes in the prime lending rate and other interest rates, changes in economic conditions in general, and other factors. 36 Table of Contents Risks Related to Our Industry We are subject to interest rate risk, which could adversely affect our financial condition and profitability.
As is the case with other similarly situated financial institutions, our profitability will be subject to the fluctuating cost and availability of funds, changes in the prime lending rate and other interest rates, changes in economic conditions in general, and other factors.
The federal Bank Secrecy Act, the USA Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network, established by the U.S.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. The federal Bank Secrecy Act, the USA Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate.
In addition, our credit risk may be exacerbated when the collateral held by the Bank cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank.
In addition, our credit risk may be exacerbated when the collateral held by the Bank cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank. Any such losses could have a material adverse effect on our financial condition and results of operations.
Our stock price has been volatile in the past and several factors could cause the price to fluctuate substantially in the future.
Our stock price may be volatile, which could result in losses to our investors and litigation against us. Our stock price has been volatile in the past and several factors could cause the price to fluctuate substantially in the future.
Our financial condition and results of operations could be negatively affected to the extent we rely on financial statements that do not comply with GAAP or are materially misleading, any of which could be caused by errors, omissions, or fraudulent behavior by our employees, clients, counterparties, or other third parties.
Our financial condition and results of operations could be negatively affected to the extent we rely on financial statements that do not comply with GAAP or are materially misleading, any of which could be caused by errors, omissions, or fraudulent behavior by our employees, clients, counterparties, or other third parties. 35 Table of Contents In addition, criminals committing fraud increasingly are using more sophisticated techniques and in some cases are part of larger criminal rings, which allow them to be more effective.
If the Bank is not permitted to pay cash dividends to the Company, it is unlikely that we would be able to pay cash dividends on our common stock.
If the Bank is not permitted to pay cash dividends to the Company, it is unlikely that we would be able to pay cash dividends on our common stock. Moreover, holders of our common stock are entitled to receive dividends only when, and if declared by our board of directors.
Our decisions regarding allowance for credit losses and credit risk may materially and adversely affect our business. Making loans and other extensions of credit is an essential element of our business. Although we seek to mitigate risks inherent in lending by adhering to specific underwriting practices, our loans and other extensions of credit may not be repaid.
Although we seek to mitigate risks inherent in lending by adhering to specific underwriting practices, our loans and other extensions of credit may not be repaid.
If we suffer credit losses that exceed our allowance for credit losses, our financial condition, liquidity or results of operations could be materially and adversely affected.
If we suffer credit losses that exceed our allowance for credit losses, our financial condition, liquidity or results of operations could be materially and adversely affected. Our decisions regarding allowance for credit losses and credit risk may materially and adversely affect our business. Making loans and other extensions of credit is an essential element of our business.
Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to clients on alternative investments and general economic conditions. Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations.
Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to clients on alternative investments and general economic 31 Table of Contents conditions.
Such sources include proceeds from FHLB advances, sales of investment securities and loans, and federal funds lines of credit from correspondent banks, as well as out-of-market time deposits.
Accordingly, we may be required from time to time to rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. Such sources include proceeds from FHLB advances, sales of investment securities and loans, and federal funds lines of credit from correspondent banks, as well as out-of-market time deposits.
A significant portion of our banking assets are subject to changes in interest rates. As of December 31, 2022, approximately 87% of our loan portfolio was in fixed rate loans, while only 13% was in variable rate loans.
Risks Related to Our Industry We are subject to interest rate risk, which could adversely affect our financial condition and profitability. A significant portion of our banking assets are subject to changes in interest rates. As of December 31, 2023, approximately 84% of our loan portfolio was in fixed rate loans, while only 16% was in variable rate loans.
Sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.
Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk. Sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.
These changes have impacted the rulemaking, supervision, examination and enforcement priorities and policies of the agencies and likely will continue to do so over the next several years. The potential impact of any changes in agency personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be predicted at this time.
These changes have impacted the rulemaking, supervision, examination and enforcement priorities and policies of the agencies and likely will continue to do so over the next several years.
We are exposed to many types of operational risk, including the risk of fraud by employees and third parties, clerical recordkeeping errors and transactional errors. Our business is dependent on our employees as well as third-party service providers to process a large number of increasingly complex transactions.
Our business is dependent on our employees as well as third-party service providers to process a large number of increasingly complex transactions.
Among other sources of funds, in 2022, we relied on brokered deposits to provide funds with which to make loans and provide other liquidity needed. Brokered deposits were $236.2 million, representing 7.5% of our total deposits at December 31, 2022. Generally, these deposits may not be as stable as other types of deposits.
Among other sources of funds, in 2023, we relied on brokered deposits to provide funds with which to make loans and provide other liquidity needed. Our brokered deposits were $379.4 million, representing 11.2% of our total deposits at December 31, 2023 and included fixed-rate time deposits with maturities through October 2028.
There are considerable costs involved in opening branches, and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation for at least a year or more. Accordingly, any new branches established can be expected to negatively impact earnings for some period of time until they reach certain economies of scale.
Our growth may entail an increase in overhead expenses if we add new branches and staff. There are considerable costs involved in opening branches, and new branches generally do not generate sufficient revenues to offset their costs until they have been in operation for at least a year or more.
Our historical results may not be indicative of future results or results that may be achieved, particularly if we continue to expand.
Accordingly, any new branches established can be expected to negatively impact earnings for some period of time until they reach certain economies of scale. Our historical results may not be indicative of future results or results that may be achieved, particularly if we continue to expand.
Any such losses could have a material adverse effect on our financial condition and results of operations We are subject to losses due to errors, omissions or fraudulent behavior by our employees, clients, counterparties or other third parties.
We are subject to losses due to errors, omissions or fraudulent behavior by our employees, clients, counterparties or other third parties. We are exposed to many types of operational risk, including the risk of fraud by employees and third parties, clerical recordkeeping errors and transactional errors.
Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us.
The potential impact of the 2024 election on additional changes in agency personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be predicted at this time. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us.
Removed
While the COVID-19 fiscal stimulus and relief programs appear to have delayed any materially adverse financial impact to the Bank, once these stimulus programs have been fully exhausted, we believe our credit metrics could worsen and credit losses could ultimately materialize.
Added
The prospects for the enactment of major banking reform legislation remain unclear at this time.
Removed
Any potential credit losses will be contingent upon a number of factors beyond our control, such as a slower return to pre-pandemic routines, which will be influenced by a number of factors including increases in new COVID-19 cases, hospitalizations and deaths leading to additional government imposed restrictions; refusals to receive the vaccines along with concerns related to new strains of the virus; supply chain issues remaining unresolved longer than anticipated; unemployment increases while consumer confidence and spending falls; and rising geopolitical tensions.
Added
Our operational or security systems may experience an interruption or breach in security, including as a result of cyber-attacks. We rely heavily on communications and information systems to conduct our business.
Removed
Such events could also cause downturns in economic and market conditions generally, which could have an adverse effect on our business and financial results.
Added
Our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses. Our enterprise risk management framework seeks to mitigate risk and loss to us.
Removed
In addition, criminals committing fraud increasingly are using more sophisticated techniques and in some cases are part of larger criminal rings, which allow them to be more effective.
Added
We have established comprehensive policies and procedures and an internal control framework designed to provide a sound operational environment for the types of risk to which we are subject, including credit risk, market risk (interest rate and price risks), liquidity risk, operational risk, compliance risk, legal risk, strategic risk, and reputational risk.
Removed
Inflationary pressures are currently expected to remain elevated throughout 2023. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.
Added
However, as with any risk management framework, there are inherent limitations to our current and future risk management strategies, including risks that we have not appropriately anticipated or identified. In addition, our businesses and the markets in which we operate are continuously evolving. We may fail to adequately or timely enhance our enterprise risk framework to address those changes.
Removed
The phase-out of LIBOR could negatively impact our net interest income and require significant operational work.
Added
If our enterprise risk framework is ineffective, either because it fails to keep pace with changes in the financial markets, regulatory requirements, our businesses, our counterparties, clients or service providers or for other reasons, 36 Table of Contents we could incur losses, suffer reputational damage or find ourselves out of compliance with applicable regulatory or contractual mandates.
Removed
The United Kingdom’s Financial Conduct Authority (“FCA”) regulates the London Interbank Offered Rate (“LIBOR”), the reference rate previously used for many of our transactions, including our lending and borrowing and our purchase and sale of securities, as well as the derivatives that we use to manage risk related to such transactions.
Added
In addition to our executive committee, the Risk Committee of the Board, the Audit Committee of the Board, as well as the Company’s Chief Risk Officer are all responsible for the “risk management framework” of the Company. These committees each meet regularly, with the authority to convene additional meetings, as circumstances require.
Removed
The FCA announced in July 2017 that the sustainability of LIBOR could not be guaranteed.
Added
Our interest rate risk is overseen by the Risk Committee which monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program.
Removed
Accordingly, although the FCA confirmed the extension of overnight and 1-, 3-, 6-, and 12-month LIBOR through June 30, 2023 in order to accord financial institutions greater time with which to manage the transition from LIBOR, the FCA is no longer persuading, or compelling, banks to submit to LIBOR.
Added
The Risk Committee reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable. In addition to our annual review of this policy, our Board of Directors reviews the interest rate risk policy limits at least annually.
Removed
The federal banking agencies previously determined that banks should have ceased entering into any new contract that use LIBOR as a reference rate by December 31, 2021.
Added
In 2021 through 2022, inflation rose to levels not seen for over 40 years, reaching 7% and 6.5%, respectively. In 2023, the annual inflation rate decreased to 3.4% but inflationary pressures are currently expected to remain elevated throughout 2024.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition, we currently operate seven additional offices located in Greenville, Columbia, Summerville and Charleston, South Carolina, one office in Raleigh, North Carolina, one office in Greensboro, North Carolina, one office in Charlotte, North Carolina, and one office in Atlanta, Georgia. We lease seven of our offices and own the remaining five locations.
Biggest changeIn addition, we currently operate eight additional offices located in Greenville, Columbia, Summerville and Charleston, South Carolina, one office in Raleigh, North Carolina, one office in Greensboro, North Carolina, one office in 44 Table of Contents Charlotte, North Carolina, and one office in Atlanta, Georgia. We lease eight of our offices and own the remaining five locations.
Item 2. Properties. Our principal executive offices and the Bank’s main office is located at 6 Verdae Boulevard, Greenville, South Carolina 29607.
Item 2. Properties. Our principal executive offices and the Bank’s main office are located at 6 Verdae Boulevard, Greenville, South Carolina 29607.
Removed
During the fourth quarter of 2020, we consolidated our three Columbia, South Carolina locations into one and subsequently sold the two remaining offices. Management believes the terms of the various leases are consistent with market standards and were arrived at through arm’s-length bargaining.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 43 PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 43 Item 6. [Reserved] 46 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 47 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 65 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 45 PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities 45 Item 6. [Reserved] 46 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 47 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 65 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe FDIC also has the authority under federal law to enjoin a bank from engaging in what in its opinion constitutes an unsafe or unsound practice in conducting its business, including the payment of a dividend under certain circumstances. 43 Table of Contents Equity Compensation Plan Information The following table sets forth information regarding equity compensation plans approved by security holders at December 31, 2022.
Biggest changeThe FDIC also has the authority under federal law to enjoin a bank from engaging in what in its opinion constitutes an unsafe or unsound practice in conducting its business, including the payment of a dividend under certain circumstances.
(2) The weighted-average exercise prices in this column are based on outstanding options and do not take into account unvested awards of restricted stock as these awards do not have an exercise price. 44 Table of Contents Stock Performance Graph The performance graph below compares the Company’s cumulative total return over the most recent five-year period with the SNL Southeast Bank Index, a banking industry performance index for the southeastern United States, and the Russell 2000 Index, a small-cap stock market index which the Company was added to in June 2016.
(3) The weighted-average exercise prices in this column are based on outstanding options and do not take into account unvested awards of restricted stock as these awards do not have an exercise price. 45 Table of Contents Stock Performance Graph The performance graph below compares the Company’s cumulative total return over the most recent five-year period with the SNL Southeast Bank Index, a banking industry performance index for the southeastern United States, and the Russell 2000 Index, a small-cap stock market index which the Company was added to in June 2016.
Item 5. Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. Market Information and Holders of Record Our common stock is currently traded on the NASDAQ Global Market under the symbol “SFST.” We had approximately 3,200 shareholders of record on January 17, 2023.
Item 5. Market for Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. Market Information and Holders of Record Our common stock is currently traded on the NASDAQ Global Market under the symbol “SFST.” We had approximately 2,900 shareholders of record on February 5, 2024.
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b)(2) Number of securities remaining available for future issuance under equity compensation plans (c) (excluding securities reflected in column(a)) Equity compensation plans approved by security holders 2010 Stock Incentive Plan – options (1) 124,427 $ 25.33 - 2016 Equity Incentive Plan – options (1) 294,922 37.61 - 2020 Equity Incentive Plan 7,875 52.88 370,824 Total 427,224 $ 34.32 370,824 (1) Under the terms of the 2010 and 2016 Plans no further incentive stock option awards may be granted; however, the Plans will remain in effect until all awards have been exercised or forfeited and we determine to terminate the Plans.
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) (3) Number of securities remaining available for future issuance under equity compensation plans (c) (excluding securities reflected in column(a)) Equity compensation plans approved by security holders 2010 Stock Incentive Plan – options (1) 78,802 $ 26.18 - 2016 Equity Incentive Plan – options (1) 245,047 37.99 - 2020 Equity Incentive Plan (2) 7,500 52.85 319,058 Total 331,349 $ 35.51 319,058 (1) Under the terms of the 2010 and 2016 Plans no further incentive stock option awards may be granted; however, the Plans will remain in effect until all awards have been exercised or forfeited and we determine to terminate the Plans.
We had no equity compensation plans that were not approved by security holders at December 31, 2022. The number of shares and the exercise prices for options have been adjusted for the 10% stock dividends in 2006, 2011, 2012, and 2013.
The number of shares and the exercise prices for options have been adjusted for the 10% stock dividends in 2006, 2011, 2012, and 2013.
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Period Ending 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Southern First Bancshares 100.00 77.75 103.01 85.70 151.49 110.91 S&P US BMI Banks – Southeast Bank Index 100.00 82.62 116.45 104.41 149.13 121.30 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 45 Table of Contents Sales of Unregistered Equity Securities None Stock Repurchases On June 21, 2022, the Company announced a share repurchase plan allowing us to repurchase up to 399,026 shares of our common stock (the “Repurchase Plan”).
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Equity Compensation Plan Information The following table sets forth information regarding equity compensation plans approved by security holders at December 31, 2023. We had no equity compensation plans that were not approved by security holders at December 31, 2023.
Removed
As of December 31, 2022, we have not repurchased any of the shares authorized for repurchase under the Repurchase Plan.
Added
(2) The 2020 Equity Incentive Plan provides for shares to be issued as either stock options or restricted stock grants.
Removed
The Company is not obligated to purchase any such shares under the Repurchase Plan, and the Repurchase Plan may be discontinued, suspended or restarted at any time; however, repurchases under the Repurchase Plan after December 31, 2022 will require additional approval of our Board of Directors and the Federal Reserve.
Added
Period Ending 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Southern First Bancshares 100.00 132.49 110.23 194.86 142.66 115.68 S&P US BMI Banks – Southeast Bank Index 100.00 140.94 126.37 180.49 146.81 151.44 Russell 2000 Index 100.00 125.52 150.58 172.90 137.56 160.85 Sales of Unregistered Equity Securities None Stock Repurchases The Company does not have a current repurchase plan and, as such, future repurchases will require additional approval of our Board of Directors and the Federal Reserve.
Removed
The following table reflects share repurchase activity during the fourth quarter of 2022: Period (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid per Share (or Unit) (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs October 1 – October 31 - $ - - 399,026 November 1 – November 30 - - - 399,026 December 1 – December 31 - - - 399,026 Total - - 399,026

Item 7. Management's Discussion & Analysis

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

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Biggest changeThe net of capitalized loan costs and fees are amortized into interest income on loans. 50 Table of Contents Average Balances, Income and Expenses, Yields and Rates For the Year Ended December 31, 2022 2021 2020 (dollars in thousands) Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Interest-earning assets Federal funds sold and interest-bearing deposits with banks $ 88,077 $ 1,439 1.63 % $ 123,379 $ 233 0.19 % $ 105,344 $ 270 0.26 % Investment securities, taxable 97,328 1,793 1.84 % 92,812 1,110 1.20 % 74,517 1,253 1.68 % Investment securities, nontaxable (1) 10,604 256 2.41 % 11,331 292 2.58 % 6,262 210 3.36 % Loans (2) 2,870,733 114,233 3.98 % 2,314,257 91,599 3.96 % 2,106,569 93,133 4.42 % Total earning assets 3,066,742 117,721 3.84 % 2,541,779 93,234 3.67 % 2,292,692 94,866 4.14 % Nonearning assets 157,380 126,654 103,212 Total assets $ 3,224,122 $ 2,668,433 $ 2,395,904 Interest-bearing liabilities NOW accounts $ 374,956 816 0.22 % $ 306,669 204 0.07 % $ 255,514 352 0.14 % Savings & money market 1,364,961 13,138 0.96 % 1,176,820 2,454 0.21 % 1,003,339 7,513 0.75 % Time deposits 301,793 4,148 1.37 % 176,301 1,251 0.71 % 301,078 5,190 1.72 % Total interest-bearing deposits 2,041,710 18,102 0.89 % 1,659,790 3,909 0.24 % 1,559,931 13,055 0.84 % FHLB advances and other borrowings 19,614 209 1.07 % 704 11 1.56 % 30,990 338 1.09 % Subordinated debt 36,156 1,730 4.78 % 36,049 1,515 4.20 % 35,940 1,615 4.49 % Total interest-bearing liabilities 2,097,498 20,041 0.96 % 1,696,543 5,435 0.32 % 1,626,861 15,008 0.92 % Noninterest-bearing liabilities 841,233 721,267 553,098 Shareholders’ equity 285,409 250,623 215,945 Total liabilities and shareholders’ equity $ 3,224,122 $ 2,668,433 $ 2,395,904 Net interest spread 2.88 % 3.35 % 3.22 % Net interest income(tax equivalent)/margin $ 97,680 3.19 % $ 87,799 3.45 % $ 79,858 3.48 % Less: tax-equivalent adjustment (1) (59 ) (67 ) (48 ) Net interest income $ 97,621 $ 87,732 $ 79,810 (1) The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis.
Biggest changeThe net of capitalized loan costs and fees are amortized into interest income on loans. 50 Table of Contents Average Balances, Income and Expenses, Yields and Rates For the Year Ended December 31, 2023 2022 2021 (dollars in thousands) Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Interest-earning assets Federal funds sold and interest-bearing deposits with banks $ 134,495 $ 6,998 5.20 % $ 88,077 $ 1,439 1.63 % $ 123,379 $ 233 0.19 % Investment securities, taxable 121,739 4,296 3.53 % 97,328 1,793 1.84 % 92,812 1,110 1.20 % Investment securities, nontaxable (1) 7,941 217 2.73 % 10,604 256 2.41 % 11,331 292 2.58 % Loans (2) 3,497,623 166,137 4.75 % 2,870,733 114,233 3.98 % 2,314,257 91,599 3.96 % Total interest-earning assets 3,761,798 177,648 4.72 % 3,066,742 117,721 3.84 % 2,541,779 93,234 3.67 % Noninterest-earning assets 162,771 157,380 126,654 Total assets $ 3,924,569 $ 3,224,122 $ 2,668,433 Interest-bearing liabilities NOW accounts $ 299,703 2,254 0.75 % $ 374,956 816 0.22 % $ 306,669 204 0.07 % Savings & money market 1,708,874 61,241 3.58 % 1,364,961 13,138 0.96 % 1,176,820 2,454 0.21 % Time deposits 631,967 27,878 4.41 % 301,793 4,148 1.37 % 176,301 1,251 0.71 % Total interest-bearing deposits 2,640,544 91,373 3.46 % 2,041,710 18,102 0.89 % 1,659,790 3,909 0.24 % FHLB advances and other borrowings 169,963 6,382 3.75 % 19,614 209 1.07 % 704 11 1.56 % Subordinated debt 36,265 2,189 6.04 % 36,156 1,730 4.78 % 36,049 1,515 4.20 % Total interest-bearing liabilities 2,846,772 99,944 3.51 % 2,097,498 20,041 0.96 % 1,696,543 5,435 0.32 % Noninterest-bearing liabilities 775,116 841,233 721,267 Shareholders’ equity 302,681 285,409 250,623 Total liabilities and shareholders’ equity $ 3,924,569 $ 3,224,122 $ 2,668,433 Net interest spread 1.21 % 2.88 % 3.35 % Net interest income(tax equivalent)/margin $ 77,704 2.07 % $ 97,680 3.19 % $ 87,799 3.45 % Less: tax-equivalent adjustment (1) (50 ) (59 ) (67 ) Net interest income $ 77,654 $ 97,621 $ 87,732 (1) The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis.
We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio. Regulatory capital rules, which we refer to Basel III, impose minimum capital requirements for bank holding companies and banks.
We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio. Regulatory capital rules, which we refer to as Basel III, impose minimum capital requirements for bank holding companies and banks.
For example, the “Average Balances, Income and Expenses, Yields and Rates” table shows the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during 2022, 2021, and 2022.
For example, the “Average Balances, Income and Expenses, Yields and Rates” table shows the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during 2023, 2022, and 2021.
The allowance for credit losses as a percentage of our outstanding loan portfolio decreased from the prior year primarily to historically low loan charge-offs which factors into the expected loss rate on our current loan portfolio.
The allowance for credit losses as a percentage of our outstanding loan portfolio decreased from the prior year primarily due to historically low loan charge-offs which factors into the expected loss rate on our current loan portfolio.
During 2022, we grew by 15 employees who were hired primarily to grow our footprint in each of our South Carolina, North Carolina, and Georgia markets. ● Occupancy expenses increased $2.1 million, or 30.9%, driven by increased depreciation, insurance, property taxes and maintenance expenses primarily related to our new headquarters building. ● Outside service and data processing costs increased $644,000, or 11.8%, primarily due to increased electronic banking, software licensing costs and ATM card related expenses. ● Insurance expenses increased $537,000, or 46.7%, related to higher FDIC insurance premiums. ● Marketing expenses increased $311,000, or 34.4%, driven by an increase in community sponsorships and business development. ● Other noninterest expenses increased $514,000, or 17.9%, due primarily to an increase in travel expenses between our eight markets, deposit account losses, and staff related expenses.
During 2022, we grew by 15 employees who were hired primarily to grow our footprint in each of our South Carolina, North Carolina, and Georgia markets. ● Occupancy expenses increased $2.1 million, or 30.9%, driven by increased depreciation, insurance, property taxes and maintenance expenses primarily related to our new headquarters building. ● Outside service and data processing costs increased $644,000, or 11.8%, primarily due to increased electronic banking, software licensing costs and ATM card related expenses. ● Insurance expenses increased $537,000, or 46.7%, related to higher FDIC insurance premiums. 54 Table of Contents ● Marketing expenses increased $311,000, or 34.4%, driven by an increase in community sponsorships and business development. ● Other noninterest expenses increased $514,000, or 17.9%, due primarily to an increase in travel expenses between our eight markets, deposit account losses, and staff related expenses.
The decrease in net income resulted primarily from an increase in our provision for credit losses, a decrease in noninterest income and an increase in noninterest expenses, partially offset by an increase in net interest income.
The decrease in net income resulted primarily from a decrease in net interest income and an increase in noninterest expenses, partially offset by a decrease in the provision for credit losses.
As permitted by the CARES Act, we do not consider loan modifications to borrowers affected by COVID-19 to be TDRs unless the borrower was 30 days or more past due as of December 31, 2019, (ii) the modifications were related to COVID-19, and (iii) the modification occurred between March 1, 2020 and January 1, 2022.
As permitted by the CARES Act, we did not consider loan modifications to borrowers affected by COVID-19 to be TDRs unless the borrower was 30 days or more past due as of December 31, 2019, (ii) the modifications were related to COVID-19, and (iii) the modification occurred between March 1, 2020 and January 1, 2022.
See Note 14 to the Consolidated Financial Statements for additional information regarding the fair values measured at each level of the fair value hierarchy, additional discussion regarding fair value measurements, and a brief description of how fair value is determined for categories that have unobservable inputs. Income Taxes The financial statements have been prepared on the accrual basis.
See Note 12 to the Consolidated Financial Statements for additional information regarding the fair values measured at each level of the fair value hierarchy, additional discussion regarding fair value measurements, and a brief description of how fair value is determined for categories that have unobservable inputs. Income Taxes The financial statements have been prepared on the accrual basis.
As of December 31, 2022, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward and downward movements in interest rates of 100, 200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal interest rates and loan and deposit repricing rates.
As of December 31, 2023, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward and downward movements in interest rates of 100, 200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal interest rates and loan and deposit repricing rates.
Option periods that we have not yet exercised are not included in this analysis as they do not represent contractual obligations until exercised. The following table provides payments due by period for obligations under long-term borrowings and operating lease obligations as of December 31, 2022.
Option periods that we have not yet exercised are not included in this analysis as they do not represent contractual obligations until exercised. The following table provides payments due by period for obligations under long-term borrowings and operating lease obligations as of December 31, 2023.
We do not feel that any existing noncancelable operating lease agreements are likely to materially impact 64 Table of Contents our financial condition or results of operations in an adverse way. Contractual obligations relative to these agreements are noted in the table below.
We do not feel that any existing noncancelable operating lease agreements are likely to materially impact our financial condition or results of operations in an adverse way. Contractual obligations relative to these agreements are noted in the table below.
In the past, we have chosen to obtain a portion of our certificates of deposits from areas outside of our market in order to obtain longer term deposits than are readily available in our local market. Our internal guidelines regarding the use of brokered CDs limit our brokered CDs to 20% of total deposits.
In the past, we have chosen to obtain a portion of our certificates of deposits from areas outside of our market in order to obtain longer term deposits than are readily available in our local market. Our internal guidelines regarding the use of brokered CDs limit our brokered CDs to 30% of total deposits.
On September 30, 2019, the Company sold and issued $23.0 million in aggregate principal amount of its 4.75% Fixed-to-Floating Rate Subordinated Notes due 2029 to eligible purchasers in a private offering. The Company intends to use the proceeds from the offering, which were approximately $22.5 million, for general corporate purposes, including providing capital to the Bank and supporting organic growth.
On September 30, 2019, the Company sold and issued $23.0 million in aggregate principal amount of its 4.75% Fixed-to-Floating Rate Subordinated Notes due 2029 to eligible purchasers in a private offering. The Company used the proceeds from the offering, which were approximately $22.5 million, for general corporate purposes, including providing capital to the Bank and supporting organic growth.
The following table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities at December 31, 2022, 2021 and 2020. We derived these yields or costs by dividing income or expense by the average balance of the corresponding assets or liabilities.
The following table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities at December 31, 2023, 2022 and 2021. We derived these yields or costs by dividing income or expense by the average balance of the corresponding assets or liabilities.
In addition, to loan growth, the provision for credit losses was impacted by slightly lower expected loss rates due to historically low charge-offs during the 12 months ended December 31, 2022 while minor adjustments to two internal qualitative factors increased the qualitative component of the allowance and related provision expense.
In addition, to loan growth, 52 Table of Contents the provision for credit losses was impacted by slightly lower expected loss rates due to historically low charge-offs during the 12 months ended December 31, 2022 while minor adjustments to two internal qualitative factors increased the qualitative component of the allowance and related provision expense.
In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for credit losses, subject to certain limitations.
In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied 62 Table of Contents by a risk-weight factor of 0% to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for credit losses, subject to certain limitations.
The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), equity to assets ratio (average equity divided by average assets), and tangible common equity ratio (total equity less preferred stock divided by total assets) for the three years ended December 31, 2022.
The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), equity to assets ratio (average equity divided by average assets), and tangible common equity ratio (total equity less preferred stock divided by total assets) for the three years ended December 31, 2023.
Our net interest margin (TE) decreased 26 basis points in 2022, compared to 2021, due to higher costs on our interest-bearing liabilities, partially offset by an increase in yield on our interest- earning assets.
During 2022, our net interest margin decreased 26 basis points, compared to 2021, due to higher costs on our interest-bearing liabilities, partially offset by an increase in yield on our interest-earning assets.
The dividends that may be paid by the Bank to the Company are subject to legal limitations and regulatory capital requirements. Effect of Inflation and Changing Prices The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements.
The dividends that may be paid by the Bank to the Company are subject to legal limitations and regulatory capital requirements. 63 Table of Contents Effect of Inflation and Changing Prices The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements.
The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the 63 Table of Contents borrower. The type of collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.
The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. The type of collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate.
We derived our balance sheet and income statement data for the years ended December 31, 2022, 2021, and 2020 from our audited consolidated financial statements.
We derived our balance sheet and income statement data for the years ended December 31, 2023, 2022, and 2021 from our audited consolidated financial statements.
The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans for the five years ended December 31, 2022.
The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans for the five years ended December 31, 2023.
Core deposits exclude out-of-market deposits and time deposits of $250,000 or more and provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $2.76 billion, $2.48 billion, and $2.01 billion at December 31, 2022, 2021 and 2020, respectively. All of our time deposits are certificates of deposits.
Core deposits exclude out-of-market deposits and time deposits of $250,000 or more and provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were $2.81 billion, $2.76 billion, and $2.48 billion at December 31, 2023, 2022 and 2021, respectively. All of our time deposits are certificates of deposits.
As of December 31, 2022, $1.7 million remained outstanding under these commitments. We utilize a variety of short-term and long-term borrowings to supplement our supply of lendable funds, to assist in meeting deposit withdrawal requirements, and to fund growth of interest-earning assets in excess of traditional deposit growth.
As of December 31, 2023, $1.4 million remained outstanding under these commitments. We utilize a variety of short-term and long-term borrowings to supplement our supply of lendable funds, to assist in meeting deposit withdrawal requirements, and to fund growth of interest-earning assets in excess of traditional deposit growth.
The decrease in noninterest income during 2022, compared to 2021, resulted primarily from the following: ● Mortgage banking income decreased $7.2 million, or 63.1%, driven by low inventory in the housing market, lower refinance volumes, and a decrease in margin on loan sales.
The decrease in noninterest income during 2022, compared to 2021, resulted primarily from the following: 53 Table of Contents ● Mortgage banking income decreased $7.2 million, or 63.1%, driven by low inventory in the housing market, lower refinance volumes, and a decrease in margin on loan sales.
Further, 0.6% and 1.0% of our total home equity lines of credit were over 30 days past due as of December 31, 2022 and 2021, respectively. Following is a summary of our loan composition for each of the last three years ended December 31, 2022.
Further, 0.8% and 0.6% of our total home equity lines of credit were over 30 days past due as of December 31, 2023 and 2022, respectively. Following is a summary of our loan composition for each of the last three years ended December 31, 2023.
Our significant accounting policies are described in Note 1 to our Consolidated Financial Statements as of December 31, 2022.
Our significant accounting policies are described in Note 1 to our Consolidated Financial Statements as of December 31, 2023.
The principal component of our liabilities is deposits which were $3.13 billion and $2.56 billion at December 31, 2022 and 2021, respectively. Like most community banks, we derive the majority of our income from interest received on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest.
The principal component of our liabilities is deposits which were $3.38 billion and $3.13 billion at December 31, 2023 and 2022, respectively. Like most community banks, we derive the majority of our income from interest received on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest.
Also, included in interest income on loans was $1.7 million related to the net amortization of loan fees and capitalized loan origination costs for the year ended December 31, 2022 and $1.4 million for the years ended December 31, 2021 and 2020.
Also, included in interest income on loans was $1.7 million related to the net amortization of loan fees and capitalized loan origination costs for the year ended December 31, 2023, compared to $1.7 million and $1.4 million for the years ended December 31, 2022 and 2021, respectively.
Our loan-to-deposit ratio was 104%, 97%, and 100% at December 31, 2022, 2021, and 2020, respectively. 60 Table of Contents The following table shows the average balance amounts and the average rates paid on deposits held by us.
Our loan-to-deposit ratio was 107%, 104%, and 97% at December 31, 2023, 2022, and 2021, respectively. 60 Table of Contents The following table shows the average balance amounts and the average rates paid on deposits held by us.
(2) Includes loans held for sale and nonaccrual loans. Our net interest margin, on a tax-equivalent basis (TE), was 3.19%, 3.45% and 3.48% for the years ended December 31, 2022, 2021 and 2020, respectively.
(2) Includes loans held for sale and nonaccrual loans. Our net interest margin, on a tax-equivalent basis (TE), was 2.07%, 3.19% and 3.45% for the years ended December 31, 2023, 2022 and 2021, respectively.
However, as short-term liquidity needs arise, we have the ability to sell a portion of our investment securities portfolio should we be required to meet those needs. Total shareholders’ equity was $294.5 million at December 31, 2022 and $277.9 million at December 31, 2021.
However, as short-term liquidity needs arise, we have the ability to sell a portion of our investment securities portfolio should we be required to meet those needs. Total shareholders’ equity was $312.5 million at December 31, 2023 and $294.5 million at December 31, 2022.
Average loans for the years ended December 31, 2022 and 2021 were $2.87 billion and $2.31 billion, respectively. Before allowance for credit losses, total loans outstanding at December 31, 2022 and 2021 were $3.27 billion and $2.49 billion, respectively. The principal component of our loan portfolio is loans secured by real estate mortgages.
Average loans for the years ended December 31, 2023 and 2022 were $3.50 billion and $2.87 billion, respectively. Before allowance for credit losses, total loans outstanding at December 31, 2023 and 2022 were $3.60 billion and $3.27 billion, respectively. The principal component of our loan portfolio is loans secured by real estate mortgages.
RESULTS OF OPERATIONS Net Interest Income and Margin Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. For the years ended December 31, 2022, 2021, and 2020, our net interest income was $97.6 million, $87.7 million, and $79.8 million, respectively.
RESULTS OF OPERATIONS Net Interest Income and Margin Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. For the years ended December 31, 2023, 2022, and 2021, our net interest income was $77.7 million, $97.6 million, and $87.7 million, respectively.
The amount of foregone 58 Table of Contents interest income on the nonaccrual loans as of December 31, 2022 and 2021 was approximately $28,000 and $55,000, respectively, for the twelve-month periods. A significant portion, or 93.1%, of nonaccrual loans at December 31, 2022 were secured by real estate.
The amount of foregone interest income on the nonaccrual loans as of December 31, 2023 and 2022 was approximately $73,000 and $28,000, respectively, for the twelve-month periods. 58 Table of Contents A significant portion, or 95.1%, of nonaccrual loans at December 31, 2023 were secured by real estate.
At December 31, 2022 and 2021, the Company estimates that it has approximately $1.4 billion and $1.2 billion, respectively, in uninsured deposits including related interest accrued and unpaid.
At December 31, 2023 and 2022, the Company estimates that it has approximately $1.3 billion and $1.4 billion, respectively, in uninsured deposits including related interest accrued and unpaid.
We have evaluated the underlying collateral on these loans and believe that the collateral on these loans is sufficient to minimize future losses. As a result of this level of coverage on nonaccrual loans, we believe the allowance for credit losses of $38.6 million for the year ended December 31, 2022 is adequate.
We have evaluated the underlying collateral on these loans and believe that the collateral on these loans is sufficient to minimize future losses. As a result of this level of coverage on nonaccrual loans, we believe the allowance for credit losses of $40.7 million for the year ended December 31, 2023 is adequate.
The increase in average interest-earning assets was driven by a $556.5 million increase in average loan balances, partially offset by a $35.3 million decrease in federal funds sold and interest-bearing deposits with banks.
The increase in average interest-earning assets was driven primarily by a $556.5 million increase in average loan balances combined with an $35.3 million decrease in federal funds sold and interest-bearing deposits with banks.
As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment. As of December 31, 2022 and 2021, we had $6.3 million in loans that we considered TDRs.
As part of our workout plan for individual loan relationships, we restructured loan terms to assist borrowers facing challenges in the economic environment. As of December 31, 2022, we had $6.3 million in loans that we considered TDRs.
At December 31, 2022 and 2021, there were $14.3 million and $10.2 million of commitments under letters of credit, respectively. The credit risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients.
At December 31, 2023 and 2022, there were $16.1 million and $14.3 million of commitments under letters of credit, respectively. The credit risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients.
However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control. At December 31, 2022 and 2021, our cash and cash equivalents amounted to $170.9 million and $167.2 million, or 4.6% and 5.7% of total assets, respectively.
However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control. At December 31, 2023 and 2022, our cash and cash equivalents amounted to $156.2 million and $170.9 million, or 3.9% and 4.6% of total assets, respectively.
The unused borrowing capacity currently available from the FHLB at December 31, 2022 was $515.8 million, based on the Bank’s $9.3 million investment in FHLB stock, as well as qualifying mortgages available to secure any future borrowings. However, we are able to pledge additional securities to the FHLB in order to increase our available borrowing capacity.
The unused borrowing capacity currently available from the FHLB at December 31, 2023 was $542.8 million, based on the Bank’s $16.1 million investment in FHLB stock, as well as qualifying mortgages available to secure any future borrowings. However, we are able to pledge additional securities to the FHLB in order to increase our available borrowing capacity.
We believe that our existing stable base of core deposits, federal funds purchased lines of credit with correspondent banks, and borrowings from the FHLB will enable us to successfully meet our long-term liquidity needs.
We believe that our existing stable base of core deposits, federal funds purchased lines of credit with correspondent banks, availability with the Federal Reserve’s Bank Term Funding Program and Discount Window, and borrowings from the FHLB will enable us to successfully meet our long-term liquidity needs.
The average home equity loan had a balance of approximately $84,000 and a loan to value of approximately 73% as of December 31, 2022, compared to an average loan balance of $81,000 and a loan to value of approximately 62% as of December 31, 2021.
The average home equity loan had a balance of approximately $85,000 and a loan to value of approximately 73% as of December 31, 2023, compared to an average loan balance of $84,000 and a loan to value of approximately 73% as of December 31, 2022.
December 31, (dollars in thousands) 2022 2021 2020 Return on average assets 0.90 % 1.75 % 0.76 % Return on average equity 10.20 % 18.64 % 8.49 % Return on average common equity 10.20 % 18.64 % 8.49 % Average equity to average assets ratio 8.85 % 9.39 % 9.01 % Tangible common equity to assets ratio 7.98 % 9.50 % 9.20 % Under the capital adequacy guidelines, regulatory capital is classified into two tiers.
December 31, (dollars in thousands) 2023 2022 2021 Return on average assets 0.34 % 0.90 % 1.75 % Return on average equity 4.44 % 10.20 % 18.64 % Return on average common equity 4.44 % 10.20 % 18.64 % Average equity to average assets ratio 7.71 % 8.85 % 9.39 % Tangible common equity to assets ratio 7.70 % 7.98 % 9.50 % Under the capital adequacy guidelines, regulatory capital is classified into two tiers.
Home equity lines of credit totaled $179.3 million as of December 31, 2022, of which approximately 48% were in a first lien position, while the remaining balance was second liens, compared to $154.8 million as of December 31, 2021, of which approximately 49% were in first lien positions and the remaining balance was in second liens.
Home equity lines of credit totaled $183.0 million as of December 31, 2023, of which approximately 46% were in a first lien position, while the remaining balance was second liens, compared to $179.3 million as of December 31, 2022, of which approximately 48% were in first lien positions and the remaining balance was in second liens.
The increase in interest expense on deposits during 2022 resulted from an increase in the rate paid on deposit balances which relates to the Federal Reserve’s 425 basis point increase in the federal funds rate. We have included a number of tables to assist in our description of various measures of our financial performance.
The increase in interest expense on deposits during 2023 resulted primarily from an increase in the rate paid on deposit balances which relates to the Federal Reserve’s 525 basis point increase in the federal funds rate over the past two years. We have included a number of tables to assist in our description of various measures of our financial performance.
As of December 31, 2022, our loan portfolio included $2.78 billion, or 84.8%, of real estate loans, compared to $2.13 billion, or 85.5%, as of December 31, 2021. Most of our real estate loans are secured by residential or commercial property.
As of December 31, 2023, our loan portfolio included $3.05 billion, or 84.8%, of real estate loans, compared to $2.78 billion, or 84.8%, as of December 31, 2022. Most of our real estate loans are secured by residential or commercial property.
We consider exceptional client service to be a critical part of our culture, which we refer to as “ClientFIRST.” At December 31, 2022, we had total assets of $3.69 billion, a 26.2% increase from total assets of $2.93 billion at December 31, 2021.
We consider exceptional client service to be a critical part of our culture, which we refer to as “ClientFIRST.” At December 31, 2023, we had total assets of $4.06 billion, a 9.9% increase from total assets of $3.69 billion at December 31, 2022.
Our average interest-earning assets increased by $525.0 million during the year ended December 31, 2022, compared to 2021, while the related yield on our interest-earning assets increased by 17 basis points.
During 2022, our average interest-bearing liabilities increased by $401.0 million, compared to 2021, while the cost of our interest-bearing liabilities increased by 64 basis points. During the year ended December 31, 2022, our average interest-earning assets increased by $525.0 million, compared to 2021, while the yield on our interest-earning assets increased by 17 basis points.
There was a $6.2 million provision for credit losses for the year ended December 31, 2022, compared to reversal of $12.4 million and an expense of $29.6 million for the years ended December 31, 2021 and 2020, respectively.
There was a $1.3 million provision for credit losses for the year ended December 31, 2023, compared to a provision of $6.2 million and a reversal of $12.4 million for the years ended December 31, 2022 and 2021, respectively.
In addition, our net income available to shareholders was $18.3 million, or EPS of $2.34 for the year ended December 31, 2020. 47 Table of Contents SELECTED FINANCIAL DATA The following table sets forth our selected historical consolidated financial information for the periods and as of the dates indicated.
In addition, our net income available to shareholders was $46.7 million, or EPS of $5.85 for the year ended December 31, 2021. 47 Table of Contents SELECTED FINANCIAL DATA The following table sets forth our selected historical consolidated financial information for the periods and as of the dates indicated.
Investment Securities At December 31, 2022 and 2021, our investment securities portfolio was $104.2 million and $124.3 million, respectively, and represented approximately 2.8% and 4.2% of our total assets, respectively.
Investment Securities At December 31, 2023 and 2022, our investment securities portfolio was $154.6 million and $104.2 million, respectively, and represented approximately 3.8% and 2.8% of our total assets, respectively.
The $12.4 million reversal of 52 Table of Contents provision during 2021 related to a reduction in qualitative adjustment factors driven by the overall improvement in economic conditions as well as improvement in the credit quality of our portfolio following the pandemic.
The $12.4 million reversal of provision during 2021 related to a reduction in qualitative adjustment factors driven by the overall improvement in economic conditions as well as improvement in the credit quality of our portfolio following the pandemic. Following is a summary of the activity in the allowance for credit losses.
December 31, (dollars in thousands) 2022 2021 Federal Home Loan Bank stock $ 9,250 1,241 Other investments 1,180 2,377 Investment in Trust Preferred subsidiaries 403 403 Total $ 10,833 4,021 Loans Since loans typically provide higher interest yields than other types of interest-earning assets, a substantial percentage of our earning assets are invested in our loan portfolio.
December 31, (dollars in thousands) 2023 2022 Federal Home Loan Bank stock $ 16,063 9,250 Other investments 3,473 1,180 Investment in Trust Preferred subsidiaries 403 403 Total $ 19,939 10,833 Loans Since loans typically provide higher interest yields than other types of interest-earning assets, a substantial percentage of our earning assets are invested in our loan portfolio.
Our available for sale investment portfolio included Corporate bonds, US treasuries, US agency securities, SBA securities, state and political subdivisions, asset-backed securities, and mortgage-backed securities with a fair value of $93.3 million and amortized cost of $110.3 million for an unrealized loss of $17.0 million at December 31, 2022 compared to a fair value of $120.3 million and amortized cost of $121.2 million for an unrealized loss of $937,000 at December 31, 2021.
Our available for sale investment portfolio included corporate bonds, US treasuries, US agency securities, SBA securities, state and political subdivisions, asset-backed securities, and mortgage-backed securities with a fair value of $134.7 million and amortized cost of $149.1 million for an unrealized loss of $14.4 million at December 31, 2023 compared to a fair value of $93.3 million and amortized cost of $110.3 million for an unrealized loss of $17.0 million at December 31, 2022.
Our net income available to common shareholders for the years ended December 31, 2022 and 2021 was $29.1 million and $46.7 million, or diluted earnings per share (“EPS”) of $3.61 and $5.85 for the years ended December 31, 2022 and 2021, respectively.
Our net income available to common shareholders for the years ended December 31, 2023 and 2022 was $13.4 million and $29.1 million, or diluted earnings per share (“EPS”) of $1.66 and $3.61 for the years ended December 31, 2023 and 2022, respectively.
See Notes 1 and 5 to the Consolidated Financial Statements for additional information on TDRs. Allowance for Credit Losses At December 31, 2022 and December 31, 2021, the allowance for credit losses was $38.6 million and $30.4 million, respectively, or 1.18% and 1.22% of outstanding loans, respectively.
See Notes 1 and 4 to the Consolidated Financial Statements for additional information on loan modifications and TDRs. Allowance for Credit Losses At December 31, 2023 and December 31, 2022, the allowance for credit losses was $40.7 million and $38.6 million, respectively, or 1.13% and 1.18% of outstanding loans, respectively.
Years Ended December 31, (dollars in thousands, except per share data) 2022 2021 2020 BALANCE SHEET DATA Total assets $ 3,691,981 2,925,548 2,482,587 Investment securities 104,180 124,302 98,364 Loans (1) 3,273,363 2,489,877 2,142,867 Allowance for credit losses 38,639 30,408 44,149 Deposits 3,133,864 2,563,826 2,142,758 FHLB advances and other borrowings 175,000 - 25,000 Subordinated debentures 36,214 36,106 35,998 Common equity 294,512 277,901 228,294 Preferred stock - - - Shareholders’ equity 294,512 277,901 228,294 SELECTED RESULTS OF OPERATIONS DATA Interest income $ 117,662 93,167 94,818 Interest expense 20,041 5,435 15,008 Net interest income 97,621 87,732 79,810 Provision for credit losses 6,155 (12,400 ) 29,600 Net interest income after provision for credit losses 91,466 100,132 50,210 Noninterest income 9,580 17,101 27,353 Noninterest expenses 62,933 56,430 53,744 Income before income tax expense 38,113 60,803 23,819 Income tax expense 8,998 14,092 5,491 Net income 29,115 46,711 18,328 Preferred stock dividends - - - Net income available to common shareholders $ 29,115 46,711 18,328 PER COMMON SHARE DATA Basic $ 3.66 5.96 2.37 Diluted 3.61 5.85 2.34 Book value 36.76 35.07 29.37 Weighted average number of common shares outstanding: Basic, in thousands 7,958 7,844 7,719 Diluted, in thousands 8,072 7,989 7,824 SELECTED FINANCIAL RATIOS Performance Ratios: Return on average assets 0.90 % 1.75 % 0.76 % Return on average equity 10.20 % 18.64 % 8.49 % Return on average common equity 10.20 % 18.64 % 8.49 % Net interest margin, tax equivalent (2) 3.19 % 3.45 % 3.55 % Efficiency ratio (3) 58.71 % 53.83 % 50.15 % Asset Quality Ratios: Nonperforming assets to total loans (1) 0.08 % 0.20 % 0.43 % Nonperforming assets to total assets 0.07 % 0.17 % 0.37 % Net charge-offs to average total loans (0.05 %) 0.06 % 0.10 % Allowance for credit losses to nonperforming loans 1,470.74 % 625.16 % 547.14 % Allowance for credit losses to total loans 1.18 % 1.22 % 2.06 % Holding Company Capital Ratios: Total risk-based capital ratio 12.91 % 14.90 % 14.38 % Tier 1 risk-based capital ratio 10.88 % 12.65 % 11.97 % Leverage ratio 9.17 % 10.19 % 9.70 % Common equity tier 1 ratio (4) 10.44 % 12.09 % 11.32 % Tangible common equity (5) 7.98 % 9.50 % 9.20 % Growth Ratios: Change in assets 26.20 % 17.84 % 9.50 % Change in loans 31.47 % 16.19 % 10.26 % Change in deposits 22.23 % 19.65 % 14.21 % Change in net income to common shareholders -37.67 % 154.86 % -34.21 % Change in earnings per common share - diluted -38.29 % 150.00 % -34.64 % 48 Table of Contents Footnotes to table: (1) Excludes loans held for sale.
Years Ended December 31, (dollars in thousands, except per share data) 2023 2022 2021 BALANCE SHEET DATA Total assets $ 4,055,789 3,691,981 2,925,548 Investment securities 154,641 104,180 124,302 Loans (1) 3,602,627 3,273,363 2,489,877 Allowance for credit losses 40,682 38,639 30,408 Deposits 3,379,564 3,133,864 2,563,826 FHLB advances and other borrowings 275,000 175,000 - Subordinated debentures 36,322 36,214 36,106 Common equity 312,467 294,512 277,901 Preferred stock - - - Shareholders’ equity 312,467 294,512 277,901 SELECTED RESULTS OF OPERATIONS DATA Interest income $ 177,598 117,662 93,167 Interest expense 99,944 20,041 5,435 Net interest income 77,654 97,621 87,732 Provision for credit losses 1,260 6,155 (12,400 ) Net interest income after provision for credit losses 76,394 91,466 100,132 Noninterest income 9,860 9,580 17,101 Noninterest expenses 68,827 62,933 56,430 Income before income tax expense 17,427 38,113 60,803 Income tax expense 4,001 8,998 14,092 Net income 13,426 29,115 46,711 Preferred stock dividends - - - Net income available to common shareholders $ 13,426 29,115 46,711 PER COMMON SHARE DATA Basic $ 1.67 3.66 5.96 Diluted 1.66 3.61 5.85 Book value 38.63 36.76 35.07 Weighted average number of common shares outstanding: Basic, in thousands 8,047 7,958 7,844 Diluted, in thousands 8,078 8,072 7,989 SELECTED FINANCIAL RATIOS Performance Ratios: Return on average assets 0.34 % 0.90 % 1.75 % Return on average equity 4.44 % 10.20 % 18.64 % Return on average common equity 4.44 % 10.20 % 18.64 % Net interest margin, tax equivalent (2) 2.07 % 3.19 % 3.45 % Efficiency ratio (3) 78.65 % 58.71 % 53.83 % Asset Quality Ratios: Nonperforming assets to total loans (1) 0.11 % 0.08 % 0.20 % Nonperforming assets to total assets 0.10 % 0.07 % 0.17 % Net charge-offs to average total loans 0.00 % (0.05 %) 0.06 % Allowance for credit losses to nonperforming loans 1,026.58 % 1,470.74 % 625.16 % Allowance for credit losses to total loans 1.13 % 1.18 % 1.22 % Holding Company Capital Ratios: Total risk-based capital ratio 12.57 % 12.91 % 14.90 % Tier 1 risk-based capital ratio 10.60 % 10.88 % 12.65 % Leverage ratio 8.14 % 9.17 % 10.19 % Common equity tier 1 ratio (4) 10.19 % 10.44 % 12.09 % Tangible common equity (5) 7.70 % 7.98 % 9.50 % Growth Ratios: Change in assets 9.85 % 26.20 % 17.84 % Change in loans 10.06 % 31.47 % 16.19 % Change in deposits 7.84 % 22.23 % 19.65 % Change in net income to common shareholders -53.89 % -37.67 % 154.86 % Change in earnings per common share - diluted -54.02 % -38.29 % 150.00 % 48 Table of Contents Footnotes to table: (1) Excludes loans held for sale.
The 64 basis point increase in the cost of our interest-bearing 51 Table of Contents liabilities, partially offset by a 17 basis point increase in yield on our interest-earning assets resulted in a 47 basis point decrease in our net interest spread for the 2022 period.
The 255 basis point increase in the cost of our interest- 51 Table of Contents bearing liabilities, partially offset by an 88 basis point increase in yield on our interest-earning assets resulted in a 167 basis point decrease in our net interest spread for the 2023 period.
Year ended December 31, 2022 2021 2020 (dollars in thousands) Amount % Amount % Amount % Net charge-offs: Commercial Owner occupied RE $ - - $ 94 0.00 % $ (29 ) 0.00 % Non-owner occupied RE 1,540 0.05 % (573 ) 0.03 % (838 ) 0.04 % Business 153 0.01 % (943 ) 0.04 % (839 ) 0.04 % Total commercial 1,693 0.06 % (1,422 ) 0.06 % (1,706 ) 0.08 % Consumer Real estate - 0.00 % 18 0.00 % (116 ) 0.01 % Home equity (247 ) 0.01 % 62 0.00 % (230 ) 0.01 % Other (90 ) 0.00 % 1 0.00 % (41 ) 0.00 % Total consumer (337 ) 0.00 % 81 0.00 % (387 ) 0.02 % Net loan (charge-offs) recoveries $ 1,356 $ (1,341 ) $ (2,093 ) Net loan (charge-offs) recoveries as a % of average loans (0.05 %) 0.06 % 0.10 % The following table summarizes the allocation of the allowance for credit losses among the various loan categories.
Year ended December 31, 2023 2022 2021 (dollars in thousands) Amount % Amount % Amount % Net charge-offs: Commercial Owner occupied RE $ - - $ - - $ 94 0.00 % Non-owner occupied RE (57 ) 0.00 % 1,540 0.05 % (573 ) 0.03 % Business 279 0.01 % 153 0.01 % (943 ) 0.04 % Total commercial 222 0.01 % 1,693 0.06 % (1,422 ) 0.06 % Consumer Real estate - 0.00 % - 0.00 % 18 0.00 % Home equity (373 ) (0.01 %) (247 ) 0.01 % 62 0.00 % Other (15 ) 0.00 % (90 ) 0.00 % 1 0.00 % Total consumer (388 ) (0.01 %) (337 ) 0.00 % 81 0.00 % Net loan (charge-offs) recoveries $ (166 ) $ 1,356 $ (1,341 ) Net loan (charge-offs) recoveries as a % of average loans 0.00 % (0.05 %) 0.06 % The following table summarizes the allocation of the allowance for credit losses among the various loan categories.
The largest components of our total assets are loans which were $3.27 billion and $2.49 billion at December 31, 2022 and 2021, respectively. Our liabilities and shareholders’ equity at December 31, 2022 totaled $3.40 billion and $294.5 million, respectively, compared to liabilities of $2.65 billion and shareholders’ equity of $277.9 million at December 31, 2021.
The largest components of our total assets are loans which were $3.60 billion and $3.27 billion at December 31, 2023 and 2022, respectively. Our liabilities and shareholders’ equity at December 31, 2023 totaled $3.74 billion and $312.5 million, respectively, compared to liabilities of $3.40 billion and shareholders’ equity of $294.5 million at December 31, 2022.
As of December 31, 2022, we do not have any individually evaluated loans carried at a value in excess of the appraised value. We typically charge-off a portion or create a specific reserve for individually evaluated loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement.
We typically charge-off a portion or create a specific reserve for individually evaluated loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement.
Years ended December 31, (dollars in thousands) 2022 2021 2020 Compensation and benefits $ 38,790 36,103 34,681 Occupancy 9,105 6,956 6,232 Other real estate owned expenses, net - 385 1,223 Outside service and data processing costs 6,112 5,468 4,860 Insurance 1,686 1,149 1,380 Professional fees 2,635 2,589 2,275 Marketing 1,216 905 690 Other 3,389 2,875 2,403 Total noninterest expenses $ 62,933 56,430 53,744 Noninterest expenses were $62.9 million for the year ended December 31, 2022, a $6.5 million, or 11.5%, increase from noninterest expense of $56.4 million for 2021.
Years ended December 31, (dollars in thousands) 2023 2022 2021 Compensation and benefits $ 40,275 38,790 36,103 Occupancy 10,255 9,105 6,956 Other real estate owned expenses, net - - 385 Outside service and data processing costs 7,078 6,112 5,468 Insurance 3,766 1,686 1,149 Professional fees 2,496 2,635 2,589 Marketing 1,357 1,216 905 Other 3,600 3,389 2,875 Total noninterest expenses $ 68,827 62,933 56,430 Noninterest expenses were $68.8 million for the year ended December 31, 2023, a $5.9 million, or 9.4%, increase from noninterest expense of $62.9 million for 2022.
December 31, (dollars in thousands) 2022 2021 2020 Commercial Non-owner occupied RE $ 247 270 1,143 Construction - - 139 Business 182 - 195 Consumer Real estate 207 989 2,536 Home equity 195 653 547 Nonaccruing troubled debt restructurings (TDRs) 1,796 2,952 3,509 Total nonaccrual loans, including nonaccruing TDRs 2,627 4,864 8,069 Other real estate owned - - 1,169 Total nonperforming assets $ 2,627 4,864 9,238 Asset Quality Ratios: Nonperforming assets/total assets 0.07 % 0.17 % 0.37 % Nonaccrual loans/gross loans 0.08 % 0.20 % 0.38 % Total loans over 90 days past due (1) $ 402 554 2,296 Loans over 90 days past due and still accruing - - - Accruing troubled debt restructurings 4,503 3,299 4,893 (1) Loans over 90 days are included in nonaccrual loans At December 31, 2022, nonperforming assets were $2.6 million, or 0.07% of total assets and 0.08% of gross loans, compared to $4.9 million, or 0.17% of total assets and 0.20% of gross loans at December 31, 2021.
December 31, (dollars in thousands) 2023 2022 2021 Commercial Non-owner occupied RE $ 1,423 247 270 Business 319 182 - Consumer Real estate 985 207 989 Home equity 1,236 195 653 Nonaccruing troubled debt restructurings (TDRs) - 1,796 2,952 Total nonaccrual loans, including nonaccruing TDRs 3,963 2,627 4,864 Total nonperforming assets $ 3,963 2,627 4,864 Asset Quality Ratios: Nonperforming assets/total assets 0.10 % 0.07 % 0.17 % Nonaccrual loans/gross loans 0.11 % 0.08 % 0.20 % Total loans over 90 days past due (1) $ 1,300 402 554 Loans over 90 days past due and still accruing - - - Accruing troubled debt restructurings - 4,503 3,299 (1) Loans over 90 days are included in nonaccrual loans At December 31, 2023, nonperforming assets were $4.0 million, or 0.10% of total assets and 0.11% of gross loans, compared to $2.6 million, or 0.07% of total assets and 0.08% of gross loans at December 31, 2022.
In comparison, the allowance for credit losses totaled $30.4 million as of December 31, 2021, or 1.22% of gross loans, and $44.1 million as of December 31, 2020, or 2.06% of gross loans.
In comparison, the allowance for credit losses totaled $38.6 million as of December 31, 2022, or 1.18% of gross loans, and $30.4 million as of December 31, 2021, or 1.22% of gross loans.
Year ended December 31, 2022 2021 (dollars in thousands) Amount % (1) Amount % (1) Commercial Owner occupied RE $ 5,867 18.7 % $ 4,754 19.6 % Non-owner occupied RE 10,376 26.3 % 10,518 26.8 % Construction 1,292 3.4 % 625 2.6 % Business 7,861 14.3 % 4,861 13.4 % Total commercial 25,396 62.7 % 20,758 62.4 % Consumer Real estate 9,487 28.4 % 7,054 27.9 % Home equity 2,551 5.5 % 1,698 6.2 % Construction 893 2.5 % 578 2.4 % Other 312 0.9 % 320 1.1 % Total consumer 13,243 37.3 % 9,650 37.6 % Total allowance for credit losses $ 38,639 100.0 % $ 30,408 100.0 % (1) Percentage of loans in each category to total loans Deposits and Other Interest-Bearing Liabilities Our primary source of funds for loans and investments is our deposits and advances from the FHLB.
Year ended December 31, 2023 2022 (dollars in thousands) Amount % (1) Amount % (1) Commercial Owner occupied RE $ 6,118 17.5 % $ 5,867 18.7 % Non-owner occupied RE 11,167 26.2 % 10,376 26.3 % Construction 1,594 4.2 % 1,292 3.4 % Business 7,385 13.9 % 7,861 14.3 % Total commercial 26,264 61.8 % 25,396 62.7 % Consumer Real estate 10,647 30.0 % 9,487 28.4 % Home equity 2,600 5.1 % 2,551 5.5 % Construction 677 1.7 % 893 2.5 % Other 494 1.4 % 312 0.9 % Total consumer 14,418 38.2 % 13,243 37.3 % Total allowance for credit losses $ 40,682 100.0 % $ 38,639 100.0 % (1) Percentage of loans in each category to total loans Deposits and Other Interest-Bearing Liabilities Our primary source of funds for loans and investments is our deposits and advances from the FHLB.
Our current loan and appraisal policies require us to review individually evaluated loans at least annually and determine whether it is necessary to obtain an updated appraisal, either through a new external appraisal or an internal appraisal evaluation. We individually review our individually evaluated loans on a quarterly basis to determine the level of impairment.
We use third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require us to review individually evaluated loans at least annually and determine whether it is necessary to obtain an updated appraisal, either through a new external appraisal or an internal appraisal evaluation.
December 31, (dollars in thousands) 2022 2021 2020 Balance, beginning of period $ 30,408 44,149 16,642 Adjustment for CECL 1,500 - - Provision for (reversal of) credit losses 5,375 (12,400 ) 29,600 Loan charge-offs (485 ) (2,166 ) (3,414 ) Loan recoveries 1,841 825 1,321 Net loan (charge-offs) recoveries 1,356 (1,341 ) (2,093 ) Balance, end of period $ 38,639 30,408 44,149 As of December 31, 2022, the allowance for credit losses totaled $38.6 million, or 1.18% of gross loans.
December 31, (dollars in thousands) 2023 2022 2021 Balance, beginning of period $ 38,639 30,408 44,149 Adjustment for CECL - 1,500 - Provision for (reversal of) credit losses 2,209 5,375 (12,400 ) Loan charge-offs (761 ) (485 ) (2,166 ) Loan recoveries 595 1,841 825 Net loan (charge-offs) recoveries (166 ) 1,356 (1,341 ) Balance, end of period $ 40,682 38,639 30,408 As of December 31, 2023, the allowance for credit losses totaled $40.7 million, or 1.13% of gross loans.
Net interest income was $87.7 million for the year ended December 31, 2021, a $7.9 million increase from net interest income of $79.8 million for the year ended December 31, 2020. The increase in net interest income was driven by a $9.6 million decrease in interest expense, partially offset by a $1.7 million decrease in interest income.
Net interest income was $97.6 million for the year ended December 31, 2022, a $9.9 million increase from net interest income of $87.7 million for the year ended December 31, 2021. The increase in net interest income was driven by a $24.5 million increase in interest income, partially offset by a $14.6 million increase in interest expense.
At December 31, 2022, individually evaluated loans totaled approximately $7.1 million for which $6.8 million of these loans have a reserve of approximately $1.3 million allocated in the allowance. During 2022, the average recorded investment in individually evaluated loans was approximately $7.6 million.
At December 31, 2023, individually evaluated loans totaled approximately $4.8 million for which $3.7 million of these loans have a reserve of approximately $688,000 allocated in the allowance. At December 31, 2022, individually evaluated loans totaled approximately $7.1 million for which $6.8 million of these loans had a reserve of approximately $1.3 million allocated in the allowance.
The increase in net interest income was driven by a $24.5 million increase in interest income, partially offset by a $14.6 million increase in interest expense. The $556.5 million increase in average loan balances was the primary driver of the increase in interest income, while the 65 basis point increase in deposit costs drove the increase in interest expense.
The $556.5 million increase in average loan balances was the primary driver of the increase in interest income, while the 65 basis point increase in deposit costs drove the increase in interest expense.
December 31, 2022 2021 2020 Amortized Fair Amortized Fair Amortized Fair (dollars in thousands) Cost Value Cost Value Cost Value Available for Sale Corporate bonds $ 2,172 1,883 2,198 2,188 - - US treasuries 999 871 999 992 - - US government agencies 13,007 10,617 14,504 14,169 6,500 6,493 SBA securities - - 429 438 504 485 State and political subdivisions 22,910 18,906 24,887 25,176 18,614 19,388 Asset-backed securities 6,435 6,229 10,136 10,164 11,587 11,529 Mortgage-backed securities 64,800 54,841 68,065 67,154 56,229 56,834 Total $ 110,323 93,347 121,218 120,281 93,434 94,729 Contractual maturities and yields on our investments are shown in the following table.
December 31, 2023 2022 2021 (dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Available for Sale Corporate bonds $ 2,147 1,910 2,172 1,883 2,198 2,188 US treasuries 9,495 9,394 999 871 999 992 US government agencies 20,594 18,656 13,007 10,617 14,504 14,169 SBA securities - - - - 429 438 State and political subdivisions 22,642 19,741 22,910 18,906 24,887 25,176 Asset-backed securities 33,450 33,236 6,435 6,229 10,136 10,164 Mortgage-backed securities 60,730 51,765 64,800 54,841 68,065 67,154 Total $ 149,058 134,702 110,323 93,347 121,218 120,281 Contractual maturities and yields on our investments are shown in the following table.
Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities.
We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities.
Our average consumer real estate loan currently has a principal balance of $468,000, a term of 22 years, and an average rate of 3.71%. 56 Table of Contents December 31, 2022 2021 2020 (dollars in thousands) Amount % of Total Amount % of Total Amount % of Total Commercial Owner occupied RE $ 612,901 18.7 % $ 488,965 19.6 % $ 433,320 20.2 % Non-owner occupied RE 862,579 26.3 % 666,833 26.8 % 585,269 27.3 % Construction 109,726 3.4 % 64,425 2.6 % 61,467 2.9 % Business 468,112 14.3 % 333,049 13.4 % 307,599 14.4 % Total commercial loans 2,053,318 62.7 % 1,553,272 62.4 % 1,387,655 64.8 % Consumer Real estate 931,278 28.4 % 694,401 27.9 % 536,311 25.0 % Home equity 179,300 5.5 % 154,839 6.2 % 156,957 7.3 % Construction 80,415 2.5 % 59,846 2.4 % 40,525 1.9 % Other 29,052 0.9 % 27,519 1.1 % 21,419 1.0 % Total consumer loans 1,220,045 37.3 % 936,605 37.6 % 755,212 35.2 % Total gross loans, net of deferred fees 3,273,363 100.0 % 2,489,877 100.0 % 2,142,867 100.0 % Less – allowance for credit losses (38,639 ) (30,408 ) (44,149 ) Total loans, net $ 3,234,724 $ 2,459,469 $ 2,098,718 Maturities and Sensitivity of Loans to Changes in Interest Rates The information in the following table is based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity.
Our average consumer real estate loan currently has a principal balance of $469,000, a term of 23 years, and an average rate of 4.10%. 56 Table of Contents December 31, 2023 2022 2021 (dollars in thousands) Amount %of Total Amount %of Total Amount %of Total Commercial Owner occupied RE $ 631,657 17.5 % $ 612,901 18.7 % $ 488,965 19.6 % Non-owner occupied RE 942,529 26.2 % 862,579 26.3 % 666,833 26.8 % Construction 150,680 4.2 % 109,726 3.4 % 64,425 2.6 % Business 500,161 13.9 % 468,112 14.3 % 333,049 13.4 % Total commercial loans 2,225,027 61.8 % 2,053,318 62.7 % 1,553,272 62.4 % Consumer Real estate 1,082,429 30.0 % 931,278 28.4 % 694,401 27.9 % Home equity 183,004 5.1 % 179,300 5.5 % 154,839 6.2 % Construction 63,348 1.7 % 80,415 2.5 % 59,846 2.4 % Other 48,819 1.4 % 29,052 0.9 % 27,519 1.1 % Total consumer loans 1,377,600 38.2 % 1,220,045 37.3 % 936,605 37.6 % Total gross loans, net of deferred fees 3,602,627 100.0 % 3,273,363 100.0 % 2,489,877 100.0 % Less – allowance for credit losses (40,682 ) (38,639 ) (30,408 ) Total loans, net $ 3,561,945 $ 3,234,724 $ 2,459,469 Maturities and Sensitivity of Loans to Changes in Interest Rates The information in the following table is based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity.
The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue and is computed by dividing noninterest expense by the sum of net interest income and noninterest income.
The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue and is computed by dividing noninterest expense by the sum of net interest income and noninterest income. The increase during the 2023 period relates primarily to the decrease in net interest income compared to the prior year.
Interest expense on deposits for 2022 represented 90.3% of total interest expense, compared to 71.9% for 2021, and 87.0% for 2020, while interest expense on borrowings represented 9.7% of total interest expense for 2022, compared to 28.1% for 2021, and 13.0% for 2020.
Interest expense on deposits for 2023 represented 91.4% of total interest expense, compared to 90.3% for 2022, and 71.9% for 2021, while interest expense on borrowings represented 8.6% of total interest expense for 2023, compared to 9.7% for 2022, and 28.1% for 2021.
The maturity distribution of our time deposits of $250,000 or more is as follows: December 31, (dollars in thousands) 2022 2021 Three months or less $ 235,216 35,151 Over three through six months 76,778 13,746 Over six through twelve months 35,681 20,521 Over twelve months 27,076 14,995 Total $ 374,751 84,413 Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2022 and December 31, 2021 were $374.8 million and $84.4 million, respectively, including wholesale deposits.
The maturity distribution of our time deposits of $250,000 or more is as follows: December 31, (dollars in thousands) 2023 2022 Three months or less $ 169,419 235,216 Over three through six months 86,342 76,778 Over six through twelve months 58,293 35,681 Over twelve months 254,011 27,076 Total $ 568,065 374,751 Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2023 and December 31, 2022 were $568.1 million and $374.8 million, respectively, including wholesale deposits.
During the year ended December 31, 2021, our average interest-earning assets increased by $249.1 million, compared to 2020, while the yield on our interest-earning assets decreased by 47 basis points.
Our average interest-earning assets increased by $695.1 million during the year ended December 31, 2023, compared to 2022, while the related yield on our interest-earning assets increased by 88 basis points.
As of December 31, 2022, our capital ratios exceed these ratios and we remain “well capitalized.” The following table summarizes the capital amounts and ratios of the Bank and the regulatory minimum requirements.
As of December 31, 2023, our capital ratios exceed these ratios and we remain “well capitalized.” The following table summarizes the capital amounts and ratios of the Bank and the regulatory minimum requirements. See Note 21 to the Consolidated Financial Statements for ratios of the Company.

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