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What changed in FIRST BANCORP /NC/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of FIRST BANCORP /NC/'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+403 added−455 removedSource: 10-K (2025-02-26) vs 10-K (2024-02-28)

Top changes in FIRST BANCORP /NC/'s 2024 10-K

403 paragraphs added · 455 removed · 315 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

84 edited+19 added−45 removed98 unchanged
Biggest changeThe substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which we operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our operations and financial condition.
Biggest changeThe substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which we operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to pursue business opportunities in an efficient manner, or otherwise adversely affect our operations and financial condition. 17 Table of Contents Available Information We maintain a corporate internet site at www.LocalFirstBank.com, which contains a link within the “Investor Relations” section of the site to each of our filings with the SEC, including our annual reports on Form 10-K, as well as our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.
The Diversity Council is focused on providing feedback and recommending actions for improvement, as well as removing barriers that impede progress related to the following areas: • Creating a work environment that demonstrates all views are respected and provides equal access to opportunities for growth and advancement; • Ensuring all open positions have a diverse pool of candidates, and our job requirements align with our principles and the markets we serve; and • Creating internal organizational learning opportunities in which associates may voluntarily participate to deepen and develop personal understanding of diversity, equity, and inclusion.
The Diversity Council is focused on providing feedback and recommending actions for improvement, as well as removing barriers that impede progress related to the following areas: • Creating a work environment that demonstrates all views are respected and provides equal access to opportunities for growth and advancement; • Ensuring all open positions have a diverse pool of candidates, and our job requirements align with our principles and the markets we serve; and • Creating internal organizational learning opportunities in which associates may voluntarily participate to deepen and develop personal understanding of diversity and inclusion.
The Bank is a member of the CDARS, which gives our customers the ability to obtain FDIC insurance on deposits of up to $50 million, while continuing to work directly with their local First Bank deposit team. Brokered deposits are deposits obtained by utilizing an outside broker that is paid a fee.
The Bank is a member of the CDARS program, which gives our customers the ability to obtain FDIC insurance on deposits of up to $50 million, while continuing to work directly with their local First Bank deposit team. Brokered deposits are deposits obtained by utilizing an outside broker that is paid a fee.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations. The AML, which amended the BSA, is intended to be a comprehensive reform and modernization to United States bank secrecy and anti-money laundering laws.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations. The AML, which amended the BSA, is intended to be a comprehensive reform and modernization of the United States bank secrecy and anti-money laundering laws.
The Federal Reserve has also issued a policy statement expressing the view that although no specific regulations restrict dividend payments by bank holding companies other than state corporate laws, a bank holding company should not pay cash dividends unless its earnings for the past year are sufficient to cover both the cash dividends and a prospective rate of earnings retention that is consistent with the bank holding company's capital needs, asset quality, and overall financial condition.
The Federal Reserve has also issued a policy statement expressing the view that although no specific regulations restrict dividend payments by bank holding companies other than state corporate laws, a bank holding company should not pay cash dividends unless its earnings for the past year are sufficient to cover both the cash dividends 13 Table of Contents and a prospective rate of earnings retention that is consistent with the bank holding company's capital needs, asset quality, and overall financial condition.
See additional discussion below in Item 7 under the section entitled “Borrowings” and Note 1 to the consolidated financial statements. Recent Developments and Acquisitions In January, 2023, we acquired GrandSouth, a community bank headquartered in Greenville, South Carolina with $1.2 billion in total assets, $1.0 billion in loans, and $1.1 billion in deposits.
See additional discussion below in Item 7 under the section entitled “Borrowings” and Note 1 to the consolidated financial statements. Acquisitions In January, 2023, we acquired GrandSouth, a community bank headquartered in Greenville, South Carolina with $1.2 billion in total assets, $1.0 billion in loans, and $1.1 billion in deposits.
Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the 16 Table of Contents relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
The CFPB can issue cease and desist orders against banks and other entities that violate consumer financial laws. The CFPB also may institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction. Interchange Fees .
The CFPB can issue cease and desist orders against banks and other entities that violate Federal consumer financial laws. The CFPB also may institute a civil action against an entity in violation of those consumer financial laws in order to impose a civil penalty or injunction. Interchange Fees .
We generally do not buy loan participations or portions of national credits, but we may acquire balances subject to participation agreements through acquisition. The total of loan participations purchased at December 31, 2023 was nominal.
We generally do not buy loan participations or portions of national credits, but we may acquire balances subject to participation agreements through acquisition. The total of loan participations purchased at December 31, 2024 was nominal.
The loans within these categories are generally secured by real estate and are therefore susceptible to changes in real estate valuations and other market disruptions in this sector. The loans were originated using underwriting standards as set forth by management.
The loans within these categories are generally secured by real estate and are therefore susceptible to changes in real estate valuations and other market disruptions. The loans were originated using underwriting standards as set forth by management.
Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s (1) lack of financial savvy; (2) inability to protect himself in the selection or use of consumer financial products or services; or (3) reasonable reliance on a covered entity to act in the consumer’s interests.
Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s lack of financial savvy, inability to protect himself in the selection or use of consumer financial products or services, or reasonable reliance on a covered entity to act in the consumer’s interests.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. The Company has multiple information security programs that reflect the requirements of this guidance.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if 15 Table of Contents the institution or its critical service providers fall victim to this type of cyber-attack. The Company has multiple information security programs that reflect the requirements of this guidance.
Continued strong competition also exists in all of the lending activities we emphasize. With banks of all sizes attempting to maximize yields on earning assets and growth of their balance sheets, the competition for high-quality loans remains strong. Accordingly, loan rates in our markets continue to be under competitive pressure.
Continued strong competition also exists in all of the lending activities we emphasize. With banks of all sizes attempting to maximize yields on earning assets and growth of their balance sheets, the competition for high-quality loans remains strong. Accordingly, loan rates in our markets continue to be under competitive pressure. We expect competition in the industry to remain high.
The program must be designed to ensure the security and confidentiality of customer information, protect against unauthorized access to or use of such information, and ensure the proper disposal of customer and consumer information. An institution that fails to meet these standards may be required to submit a compliance plan, or be subject to regulatory sanctions, including restrictions on growth.
The program must be designed to ensure the security and confidentiality of customer information, protect against unauthorized access to or use of such information, and ensure the proper disposal of customer and consumer information. A bank that fails to meet these standards may be required to submit a compliance plan or be subject to regulatory sanctions, including restrictions on growth.
Our primary loan markets were previously presented in the Loan Concentrations section above. The following table presents the counties with the largest share of our deposit base as of December 31, 2023 and 2022.
Our primary loan markets were previously presented in the Loan Concentrations section above. The following table presents the counties with the largest share of our deposit base as of December 31, 2024 and 2023.
The Dodd-Frank Act further extends the definition of an “affiliate” and treats credit exposure arising from derivative transactions, securities lending and borrowing transactions as covered transactions under applicable regulations.
The Dodd-Frank Act further extends the definition of an “affiliate” and treats credit exposure arising from derivative transactions, securities lending and borrowing transactions involving an affiliate as covered transactions under applicable regulations.
The Dodd-Frank Act and federal regulations place additional restrictions on loans to insiders and generally prohibit loans to senior officers other than for certain specified purposes. Regulation of Management.
The Dodd-Frank Act and federal regulations place additional restrictions on loans to insiders and generally prohibit loans to executive officers other than for certain specified purposes. Regulation of Management.
The Bank is subject to limitations on interchange fees under the Durbin Amendment. The Durbin Amendment rules establish a maximum permissible interchange fee for an electronic debt transaction equal to the sum of $0.21 per transaction and five basis points multiplied by the value of the transaction.
The Bank is subject to limitations on interchange fees under the Durbin Amendment to the Dodd-Frank Act (the "Durbin Amendment"). The Durbin Amendment rules establish a maximum permissible interchange fee for an electronic debt transaction equal to the sum of $0.21 per transaction and five basis points multiplied by the value of the transaction.
Our workforce consists of approximately 73% females and 18% minorities. Of our officer population, 64% are female or minorities, while our executive management team consists of 39% female or minority executives. In 2020, we formed a Diversity Council, which is chaired by our CEO and meets regularly.
Our workforce consists of approximately 73% females and 18% minorities. Of our officer population, 73% are female or minorities, while our executive management team consists of 27% female or minority executives. In 2020, we formed a Diversity Council, which is chaired by our CEO and meets regularly.
No other market area (as defined by county) comprises more than 5% of our deposit base at either period presented. 2023 2022 Moore County, North Carolina 10.8 % 10.9 % Buncombe County, North Carolina 7.2 % 8.3 % Guilford County, North Carolina 5.0 % 6.0 % We experience strong competition in all aspects of the businesses in which we engage, including both making loans and attracting deposits, from both bank and non-bank competitors.
No other market area (as defined by county) comprises more than 5% of our deposit base at either period presented. 2024 2023 Moore County, North Carolina 9.2 % 10.8 % Buncombe County, North Carolina 7.2 % 7.2 % Guilford County, North Carolina 4.8 % 5.0 % We experience strong competition in all aspects of the businesses in which we engage, including both making loans and attracting deposits, from both bank and non-bank competitors.
Bank subsidiaries of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to the holding company or its subsidiaries, on investments in securities, 11 Table of Contents and on the use of securities as collateral for loans to any borrower.
Bank subsidiaries of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to the holding company or its subsidiaries, on investments in securities, and on the use of securities as collateral for loans to any borrower.
For loans in excess of this amount, the Chief Executive Officer and the Chief Credit Officer have joint authority to approve loans up to the in-house limit of $75 million. The Board, generally through its Executive Loan Committee, approves loans in excess of the in-house limit.
For loans in excess of this amount, the Chief Executive Officer, the President and the Chief Credit Officer have joint authority to approve loans up to the in-house limit of $150 million. The Board, generally through its Executive Loan Committee, approves loans in excess of the in-house limit.
Pursuant to this policy, we may invest in U.S. government bonds, GSEs, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, state and municipal obligations, public housing authority bonds, and, to a limited extent, corporate bonds. Investments are subject to concentration and maturity limits to avoid unnecessary risks.
Pursuant to this policy, we may invest in U.S. government 7 Table of Contents bonds, GSEs, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, state and municipal obligations, public housing authority bonds, and, to a limited extent, corporate bonds. Investments are subject to concentration and maturity limits to avoid unnecessary risks.
Insider Credit Transactions. Banks are subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders, and their related interests.
Banks are subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders, and their related interests.
The CFPB focuses on (1) risks to consumers and compliance with federal consumer financial laws; (2) the markets in which firms operate and risks to consumers posed by activities in those markets; (3) depository institutions that offer a wide variety of consumer financial products and services; and (4) non-depository companies that offer one or more consumer financial products or services.
The CFPB focuses on risks to consumers and compliance with federal consumer financial laws, the markets in which firms operate and risks to consumers posed by activities in those markets, depository institutions that offer a wide variety of consumer financial products and services, and non-depository companies that offer one or more consumer financial products or services.
The Dodd-Frank Act requires publicly traded companies to provide their shareholders with (1) a non-binding shareholder vote on executive compensation; (2) a non-binding shareholder vote on the frequency of such vote; (3) disclosure of "golden parachute" arrangements in connection with specified change in control transactions; and (4) a non-binding shareholder vote on golden parachute arrangements in connection with these change in control transactions.
The Dodd-Frank Act requires publicly traded companies to provide their shareholders with a non-binding shareholder vote on executive compensation, a non-binding shareholder vote on the frequency of such vote, disclosure of "golden parachute" arrangements in connection with specified change in control transactions, and a non-binding shareholder vote on golden parachute arrangements in connection with these change in control transactions.
Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Community Reinvestment Act.
Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable 16 Table of Contents bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Community Reinvestment Act.
In recent years, examination and enforcement by federal and state banking agencies for non-compliance with consumer protection laws and regulations have increased and become more intense. 12 Table of Contents Failure to comply with these laws and regulations may subject the Bank to various penalties.
In recent years, examination and enforcement by federal and state banking agencies for non-compliance with consumer protection laws and regulations have increased and become more intense. Failure to comply with these laws and regulations may subject the Bank to various penalties.
Accordingly, the Bank's premiums may increase from time to time if the FDIC needs to increase assessments in order to replenish the fund and restore the DIF reserve ratio to 1.35%. In December 2023, the FDIC approved a final rule implementing a special assessment to replenish the DIF reserve ratio.
Accordingly, the Bank's premiums may increase from time to time if the FDIC needs to increase assessments in order to replenish the fund and restore the DIF reserve ratio to 1.35%. 14 Table of Contents In December 2023, the FDIC approved a final rule implementing a special assessment to replenish the DIF reserve ratio.
For example, with certain exceptions, neither the Company nor the Bank may condition an extension of credit to a customer on either (1) a requirement that the customer obtain additional services provided by the Company or the Bank; or (2) an agreement by the customer to refrain from obtaining other services from a competitor. Support of Bank Subsidiaries .
For example, with certain exceptions, neither the Company nor the Bank may condition an extension of credit to a customer on either a requirement that the customer obtain additional services provided by the Company or the Bank, or an agreement by the customer to refrain from obtaining other services from a competitor. 11 Table of Contents Support of Bank Subsidiaries .
In addition, each insured depository institution must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the institution's size and complexity and the nature and scope of its activities.
In addition, each bank must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the institution's size and complexity and the nature and scope of its activities.
As a general rule, regulatory authorities may prohibit banks and bank holding companies from paying dividends in a manner that would constitute an unsafe or unsound banking practice. For example, paying dividends that deplete an institution's capital base to an inadequate level is typically deemed an unsafe and unsound banking practice.
As a general rule, regulatory authorities may prohibit banks from paying dividends in a manner that would constitute an unsafe or unsound banking practice. For example, paying dividends that deplete a bank's capital base to an inadequate level is typically deemed an unsafe and unsound banking practice.
Item 1. Business General Description The Company is the fourth largest bank holding company headquartered in North Carolina. At December 31, 2023, the Company had total consolidated assets of $12.1 billion, total loans of $8.2 billion, total deposits of $10.0 billion, and shareholders’ equity of $1.4 billion.
Item 1. Business General Description The Company is the fourth largest bank holding company headquartered in North Carolina. At December 31, 2024, the Company had total consolidated assets of $12.1 billion, total loans of $8.1 billion, total deposits of $10.5 billion, and shareholders’ equity of $1.4 billion.
Competition for deposits in our markets and for national brokered deposits is primarily based on the types of deposits offered and rate paid on the deposits. Given the current rate environment, we have experienced pressure to increase deposit rates in order to retain existing deposits and attract new deposits.
Competition for deposits in our markets and for national brokered deposits is primarily based on the types of deposits offered and rate paid on the deposits. Given the current rate environment, we are continuing to experience pressure to increase deposit rates in order to retain existing deposits and attract new deposits.
Any capital loans a bank holding company makes to its bank subsidiaries are subordinate to deposits and to certain other indebtedness of those subsidiaries. State Law Restrictions. As a North Carolina corporation, the Company is subject to certain limitations and restrictions under applicable North Carolina corporate laws.
Any capital loans a bank holding company makes to a bank subsidiary are subordinate to deposits and to certain other indebtedness of that subsidiary. State Law Restrictions. As a North Carolina corporation, the Company is subject to certain limitations and restrictions under applicable North Carolina corporate laws.
We are proud to offer a comprehensive benefits package that includes medical, dental, vision and life insurance, paid time-off, 401(k) profit-sharing plan participation and an employee stock purchase plan. The Company’s 401(k) plan has historically matched 100% of each employee’s elective deferral amount, up to the first 6% of the contribution.
We are proud to offer a comprehensive benefits package that includes medical, dental, vision and life insurance, paid time-off, 401(k) profit-sharing plan participation and an employee stock purchase plan. In 2024, the Company’s 401(k) plan matched 100% of each employee’s elective deferral amount, up to the first 4% of their contribution.
In 1985, its name was changed to First Bank and in September 2013, the Company and the Bank moved their headquarters and main offices to Southern Pines, North Carolina. As of December 31, 2023, the Bank had three wholly-owned subsidiaries, SBA Complete, Magnolia Financial, and First Troy SPE, LLC.
In 1985, its name was changed to First Bank and in September 2013, the Company and the Bank moved their headquarters and main offices to Southern Pines, North Carolina. As of December 31, 2024, the Bank had two wholly-owned subsidiaries, Magnolia Financial and First Troy SPE, LLC.
The CFPB's consumer financial laws apply to all banks and include, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.
The consumer financial laws administered by the CFPB apply to all banks and include, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.
ALCO generally meets on a quarterly basis and reviews investment activity, portfolio composition, portfolio tenure, and other elements as necessary to assess the overall position of the securities portfolio and risk of the portfolio relative to the overall balance sheet.
ALCO generally meets at least quarterly and reviews investment activity, portfolio composition, portfolio tenure, and other elements as necessary to assess the overall position of the securities portfolio and risk of the portfolio relative to the overall balance sheet.
All requests for extensions of credit in excess of any individual lending officer's authority are reviewed by one of our regional credit officers, who can approve loans up to their respective lending authorities which are generally between $10 million and $15 million.
All requests for extensions of credit in excess of any individual lending officer's authority are reviewed by one of our regional credit officers, who can approve loans up to their respective lending authority of $10 million.
Market Area and Competition We are a community-oriented commercial bank offering a wide variety of financial services to meet the needs of the communities we serve. As of December 31, 2023, we conducted business from 118 branches, with 101 branch offices located across North Carolina and 17 branches in South Carolina.
Market Area and Competition We are a community-oriented commercial bank offering a wide variety of financial services to meet the needs of the communities we serve. As of December 31, 2024, we conducted business from 113 branches, with 100 branch offices located across North Carolina and 13 branches in South Carolina.
Federal banking regulations applicable to all depository financial institutions, among other things: (1) provide federal bank regulatory agencies with powers to prevent unsafe and unsound banking practices; (2) restrict preferential loans by banks to “insiders” of banks; (3) require banks to keep information on loans to major shareholders and executive officers; and (4) bar certain director and officer interlocks between financial institutions.
Federal banking regulations applicable to all depository financial institutions that, among other things, provide federal bank regulatory agencies with powers to prevent unsafe and unsound banking practices, restrict preferential loans by banks to their “insiders," require banks to keep information on loans to major shareholders and executive officers, and bar certain director and officer interlocks between financial institutions.
Among other things, the Commissioner regulates the merger of state-chartered banks, the payment of dividends, loans to officers and directors, recordkeeping, types and amounts of loans and investments, and the establishment of branches.
Among other things, the Commissioner regulates the merger of state-chartered banks, the payment of dividends, recordkeeping, types and amounts of loans and investments, the total of loans to one borrower and the establishment of branches.
However, the examination authority of the Federal Reserve allows it to examine supervised institutions as frequently as deemed necessary based on the condition of the institution or as a result of certain triggering events. 13 Table of Contents Dividends A principal source of the Company's cash is from dividends received from the Bank, which are subject to regulation and limitation.
However, the examination authority of the Federal Reserve and the Commissioner allow examinations of supervised institutions as frequently as deemed necessary based on the condition of the institution or as a result of certain triggering events. Dividends A principal source of the Company's cash is from dividends received from the Bank, which are subject to regulation and limitation.
These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
We attempt to compete successfully with our competitors, regardless of their size, by emphasizing customer service, responsiveness, local decision making, and establishing relationships with our customers, while continuing to provide a wide variety of services. We encounter strong pricing competition in providing our services, particularly in making loans and attracting deposits.
We attempt to compete successfully with our competitors, regardless of their size, by emphasizing customer service, responsiveness, local decision making, and establishing relationships with our customers, while continuing to provide a wide variety of services.
Changes in statutes, regulations, and polices applicable to Company and the Bank (including their interpretations or implementation) cannot be predicted and could have a material adverse impact on the business and operations of the Company and the Bank. Following the Company's acquisition of Select, our total assets exceeded $10.0 billion.
Changes in statutes, regulations, and polices applicable to Company and the Bank (including their interpretations or implementation) cannot be predicted and could have a material adverse impact on the business and operations of the Company and the Bank.
We believe that effective and meaningful leadership development will further elevate the Company and support us in continuing to attract and retain top talent as well as create a succession plan for future growth.
We believe that effective and meaningful leadership development will further elevate the Company and support us in continuing to attract and retain top talent as well as create a succession plan for future growth. Providing associates with meaningful, competitive and supportive benefits to care for their lives and families is a top priority for the Company.
The Bank utilizes brokered deposits to accomplish several purposes, such as acquiring a certain maturity and dollar amount without repricing the deposits of the Bank’s current customers (which could increase or decrease the overall cost of deposit), and acquiring certain maturities and dollar amounts to help manage interest rate risk.
The Bank utilizes brokered deposits to accomplish several purposes, such as acquiring a certain maturity and dollar amounts without repricing the deposits of the Bank’s current customers (which could increase or decrease the overall cost of deposit), and to help manage interest rate risk. Other Funding Sources The FHLB of Atlanta allows us to obtain advances through its credit program.
Each year, our written investment policy is reviewed by the Board and appropriate changes are made. Deposits We offer a full range of deposit accounts and services to both retail and commercial customers.
A subset of the Bank's ALCO meets more regularly to evaluate a number of possible interest rate related activities. Each year, our written investment policy is reviewed by the Board and appropriate changes are made. Deposits We offer a full range of deposit accounts and services to both retail and commercial customers.
We continually monitor our loan portfolio to identify areas of concern and to enable us to take corrective action. Lending and credit administration officers and the Board meet periodically to review past due loans and portfolio quality, the status of large loans and certain other credit or economic related matters which may impact the risk in the portfolio.
Lending and credit administration officers and the Board meet periodically to review past due loans and portfolio quality, the status of large loans and certain other credit or economic related matters which may impact the risk in the portfolio.
Legislative and Regulatory Guidance and Developments Regulatory Capital Requirement under Basel III. The Company and the Bank are subject to the Basel III regulatory capital rules that became fully phased-in as of January 1, 2019.
Based upon the terms of the special assessment, the Bank was not required to pay at the increased assessment rate. Legislative and Regulatory Guidance and Developments Regulatory Capital Requirement under Basel III. The Company and the Bank are subject to the Basel III regulatory capital rules that became fully phased-in as of January 1, 2019.
While to date we have not detected a significant compromise, the risks of significant data loss or any material financial losses related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking, and other technology-based products and services used by us and our customers.
While to date we have not detected a significant compromise, the risks of significant data loss or any material financial losses related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats.
In addition, the Executive Loan Committee reviews and approves loans to executive officers, directors, and their affiliates. 6 Table of Contents Our legal lending limit to any one borrower is approximately $210.5 million.
In addition, the Executive Loan Committee reviews and approves loans to executive officers, directors, and their affiliates and recommends those loans to the Board for its approval. Our legal lending limit to any one borrower is approximately $213.6 million.
These proposed rules have not yet been finalized. 17 Table of Contents Federal Securities Laws. The common stock of the Company is registered with the SEC under the Exchange Act and the Company is subject to the reporting, information disclosure, proxy solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act.
The common stock of the Company is registered with the SEC under the Exchange Act and the Company is subject to the reporting, information disclosure, proxy solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act.
SBA Complete specializes in providing consulting services for financial institutions across the country related to SBA loan origination and servicing. Magnolia Financial is a business financing company that offers accounts receivable financing and factoring, inventory financing, and purchase order financing throughout the southeastern United States. First Troy SPE, LLC is a holding entity for certain foreclosed properties.
Magnolia Financial is a business financing company that offers accounts receivable financing and factoring, inventory financing, and purchase order financing throughout the southeastern United States. First Troy SPE, LLC is a holding entity for certain foreclosed properties.
All lending authorities are based on the borrower’s total credit exposure, which is an aggregate of the Bank’s lending relationship with the borrower either directly or indirectly through loan guarantees or other borrowing entities related to the borrower through ownership or other control relationship.
All lending authorities are based on the borrower’s total credit exposure, which is an aggregate of the Bank’s lending relationship with the borrower either directly or indirectly through loan guarantees or other borrowing entities related to the borrower through ownership or other control relationship. 6 Table of Contents We continually monitor our loan portfolio to identify areas of concern and to enable us to take corrective action.
The Company’s benefits programs also include an Employee Assistance Program which provides all associates a comprehensive and personalized process with a tailored approach to meet associates where they are and supports them through issues they may be facing.
The Company’s benefits programs also include an Employee Assistance Program which provides all associates a comprehensive and personalized process to meet their individual needs and support them through issues they may 10 Table of Contents be facing.
Although the federal banking agencies have not developed formal regulations governing the digital asset activities of banking organizations, the supervisory framework summarized above dictates that, in order to effectively identify and manage digital asset-related risks and obtain supervisory non-objection to the proposed engagement in digital asset activities, banking organizations must implement appropriate risk management practices, including with respect to board and management oversight, policies and procedures, risk assessments, internal controls and monitoring. 18 Table of Contents Future Legislation and Regulation Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
Digital Asset Regulation Although the federal banking agencies have not developed formal regulations governing the digital asset activities of banking organizations, the supervisory framework dictates that, in order to effectively identify and manage digital asset-related risks and obtain supervisory non-objection to the proposed engagement in digital asset activities, banking organizations must implement appropriate risk management practices, including with respect to board and management oversight, policies and procedures, risk assessments, internal controls and monitoring.
In addition, if a bank experiences financial distress or operates in an unsafe or unsound manner, its deposit premiums may increase. The Dodd-Frank Act made banks with $10 billion or more in total assets responsible for increasing the DIF reserve ratio from 1.15% to 1.35% if necessary.
The Dodd-Frank Act made banks with $10 billion or more in total assets responsible for increasing the DIF reserve ratio from 1.15% to 1.35% if necessary.
Historically, our branches and facilities have been located in small- to medium-sized communities with economies based primarily on a variety of industries, including services and manufacturing. In more recent years, through both new branches and acquisitions, we have expanded in larger North Carolina cities, including Charlotte, Raleigh (Triangle region), Greensboro/Winston-Salem (Triad region), Asheville and Wilmington.
Our branches and facilities are located in small- to medium-sized communities and in larger metropolitan areas with economies based primarily on a variety of industries, including services and manufacturing. Our branch footprint includes larger North Carolina cities, including Charlotte, Raleigh (Triangle region), Greensboro/Winston-Salem (Triad region), Asheville and Wilmington, and larger South Carolina cities including Greenville, Columbia and Charleston.
Competition may further intensify as 9 Table of Contents additional companies (both banks and non-banks) enter the markets where we conduct business, competitors combine to present more formidable challengers, and we enter mature markets consistent with our expansion strategy.
Competition may further intensify as additional companies (both banks and non-banks) enter the markets where we conduct business, competitors combine to present more formidable challengers, and we enter mature markets consistent with our expansion strategy. 9 Table of Contents Human Capital Resources At First Bank, we consider our associates to be one of our competitive advantages, and continued investment in human capital is a top priority for us.
As of December 31, 2023, the largest category of CRE loans, which totaled approximately of 10% of total loans, was retail followed by warehouse and multifamily, both at approximately 7% of total loans. These CRE categories are within management's guidelines as a percent of total capital.
As of December 31, 2024, the largest categories of CRE loans as a percentage of total loans were retail at approximately 14%, followed by office, of which non owner-occupied was approximately 6% and owner-occupied was approximately 3%, commercial at approximately 7% and warehouse at approximately 6%. These CRE categories are within management's guidelines as a percent of total capital.
Many of these non-bank competitors are not subject to the same regulatory oversight, which can provide them a competitive advantage in some instances, such as operational flexibility and lower cost structures.
Additionally, many non-bank competitors are not subject to the same regulatory oversight or capital requirements, which can provide them a competitive advantage in some instances, such as operational flexibility and lower cost structures. We encounter strong pricing competition in providing our services, particularly in making loans and attracting deposits.
The rules also allow for 14 Table of Contents an upward adjustment of no more than $0.01 to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards.
The rules also allow for an upward adjustment of no more than $0.01 to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards. FDIC Insurance As an FDIC insured depository institution, the Bank's deposits are insured up to applicable limits by the DIF which is generally $250,000.
Therefore, while our exposure to credit risk is affected by changes in the economy within our markets, the risk is not significantly concentrated. 7 Table of Contents Investment Activities Our investment policy is designed to maximize our income from funds not needed to meet loan demand in a manner consistent with appropriate liquidity and risk objectives.
Investment Activities Our investment policy is designed to maximize our income from funds not needed to meet loan demand in a manner consistent with appropriate liquidity and risk objectives.
North Carolina banking law also places limitations upon the payment of dividends by North Carolina banks. Rules adopted in accordance with Basel III also impose limitations on the Bank's ability to pay dividends.
In addition, a bank may not pay cash dividends that would reduce the amount of its capital to less than minimum applicable regulatory capital requirements. North Carolina banking law also places limitations upon the payment of dividends by North Carolina banks. Rules adopted in accordance with Basel III also impose limitations on the Bank's ability to pay dividends.
As additional sources of funding, we maintain credit arrangements with various other financial institutions to purchase federal funds and participate in the Federal Reserve's Bank Term Funding Program and discount window borrowings program.
As additional sources of funding, we maintain credit arrangements with various other financial institutions to purchase federal funds and participate in the Federal Reserve's discount window borrowings program. 8 Table of Contents Other Services We also offer credit cards, debit cards, letters of credit, safe deposit box rentals, and electronic funds transfer services, including wire transfers.
A bank's community reinvestment record is also considered by the applicable banking agencies in evaluating mergers, acquisitions, and applications to open a branch or facility. In some cases, a bank's failure to comply with the CRA or the filing of CRA protests by interested parties during applicable comment periods can result in the denial or delay of such transactions.
In some cases, a bank's failure to comply with the CRA or the filing of CRA protests by interested parties during applicable comment periods can result in the denial or delay of such transactions. 12 Table of Contents Insider Credit Transactions.
Under current banking regulations and as discussed further below, banks exceeding this asset threshold are subject to heightened supervision and regulation. The following is a general summary of the material aspects of certain statutes, regulations and policies applicable to us. This summary does not purport to be complete and is qualified by reference to the applicable statutes, regulations, and policies.
Since our total assets exceed $10.0 billion, under current banking regulations and as discussed further below, we are subject to heightened supervision and regulation. The following is a general summary of the material aspects of certain statutes, regulations and policies applicable to us.
The following table presents the total lending exposure for the counties with the largest percentage of our loan portfolio as of December 31, 2023 and 2022. 2023 2022 Wake County, North Carolina 10.1 % 11.6 % New Hanover County, North Carolina 8.1 % 9.1 % Mecklenburg County, North Carolina 7.6 % 7.9 % Buncombe County, North Carolina 5.3 % 6.1 % Guilford County, North Carolina 5.0 % 5.0 % No other market (as defined by county) had total loans outstanding in excess of 5% of the total portfolio at either period presented.
These percentages represent the geographic location of the customer, which may or may not also be the location of the loan collateral. 2024 2023 Wake County, North Carolina 9.7 % 10.1 % New Hanover County, North Carolina 8.9 % 8.1 % Mecklenburg County, North Carolina 7.8 % 7.6 % Buncombe County, North Carolina 5.2 % 5.3 % Guilford County, North Carolina 4.9 % 5.0 % No other market (as defined by county) had total loans outstanding in excess of 5% of the total portfolio at either period presented.
If a bank falls below “well capitalized” status in any of these four ratios, it must ask for FDIC permission to originate or renew brokered deposits. 15 Table of Contents Financial Privacy and Cybersecurity.
If a bank falls below “well capitalized” status in any of these four ratios, it must ask for FDIC permission to originate or renew brokered deposits. Financial Privacy and Cybersecurity. The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
These restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds for payments of dividends, interest, and operational expenses. Tying Arrangements. The Company is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property, or furnishing of services.
Tying Arrangements. The Company is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property, or furnishing of services.
It also (1) expands the scope of covered transactions required to be collateralized; (2) requires collateral to be maintained at all times for covered transactions required to be collateralized; and (3) places limits on acceptable collateral.
It also expands the scope of covered transactions required to be collateralized, requires collateral to be maintained at all times for covered transactions required to be collateralized, and places limits on acceptable collateral. These restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds for payments of dividends, interest, and operational expenses.
We typically sell the portion of each loan that is guaranteed by the SBA at a premium and retain the non-guaranteed portion on our balance sheet. We also provide used car floor-plan financing through our CarBucks division. These lines of credit are typically offered to small used car dealers and are subject to traditional floor-plan administration procedures.
Through Magnolia Financial we provide accounts receivable financing and factoring, inventory financing, and purchase order financing. We also provide used car floor-plan financing through our CarBucks division. These lines of credit are typically offered to small used car dealers and are subject to traditional floor-plan administration procedures.
The FDIC insurance premium is based on an institution’s total assets minus its Tier 1 capital, and premiums are determined based on its capital, supervisory ratings, and other factors. Premium rates generally may increase if the DIF is strained due to the cost of bank failures and the number of troubled banks.
For this protection, each insured bank pays a quarterly statutory assessment and is subject to the rules and regulations of the FDIC. The FDIC insurance premium is based on an institution’s total assets minus its Tier 1 capital, and premiums are determined based on its capital, supervisory ratings, and other factors.
Supervision and Regulation of the Company General . The BHC Act limits the business of a bank holding company to owning or controlling banks and engaging in other activities closely related to the business of banking. In addition, the Company also must file reports with, and provide additional information, to the Federal Reserve. Holding Company Bank Ownership.
In addition, the Company also must file reports with, and provide additional information, to the Federal Reserve. Holding Company Bank Ownership.
Most of our business activity is with customers located within the markets where we have banking operations.
Most of our business activity is with customers located within the markets where we have banking operations. The following table presents our total lending exposure in the counties with the largest percentage of our loan portfolio as of December 31, 2024 and 2023.
Human Capital Resources Our associates are one of our competitive advantages and continued investment in human capital is a top priority for us. We have historically focused on building a rewarding work environment as we believe that valued and engaged associates lead to satisfied and active customers, which contributes to enriched shareholder value.
We have historically focused on building a rewarding work environment as we believe that valued and engaged associates lead to satisfied and active customers, which contributes to enriched shareholder value. We emphasize open and honest communication, collaboration, goal attainment, and personal and professional growth as the foundation to delivering high-quality service to one another and our customers.
Principal Business and Services We Provide Lending Activities We maintain a diversified loan portfolio by providing a broad range of commercial and retail lending services to business entities and individuals. We provide commercial business loans, commercial and residential real estate construction and mortgage loans, revolving lines of credit, letters of credit, and loans for personal uses, home improvement, and automobiles.
We provide commercial business loans, commercial and residential real estate construction and mortgage loans, revolving lines of credit, letters of credit, and loans for personal uses, home improvement, and automobiles. Commercial real estate loans include loans secured by owner-occupied and non-owner occupied commercial buildings for improved commercial, office, retail, and warehouse and shopping center space.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAcquiring other financial institutions, financial services companies, or branches involves potential adverse impact to our financial results and various other risks commonly associated with acquisitions, including, among other things: • Incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, and with integrating acquired businesses, resulting in the diversion of resources from the operation of our existing businesses. • Difficulty in estimating the value of target companies or assets and in evaluating credit, operations, management, and market risks associated with those companies or assets. • Payment of a premium over book and market values that may dilute our tangible book value and earnings per share in the short and long term. • Potential exposure to unknown or contingent liabilities of the target company, including, without limitation, liabilities for regulatory and compliance issues. • Exposure to potential asset quality issues of the target company. • Difficulties, inefficiencies or cost overruns associated with the integration of the operations, personnel, technologies, services, and products of acquired companies with ours. • Inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits. • Potential disruption to our business. 28 Table of Contents • The possible loss of key employees and customers of the target company. • Potential changes in banking, financial services or tax laws or regulations that may affect the target company.
Biggest changeIf we fail to receive the appropriate regulatory approvals, we will not be able to consummate acquisitions that we believe are in our best interests; • Difficulty in estimating the value of target companies or assets and in evaluating credit, operations, management, and market risks associated with those companies or assets; • Payment of a premium over book and market values that may dilute our tangible book value and earnings per share in the short and long term; • Potential exposure to unknown or contingent liabilities of the target company, including, without limitation, liabilities for regulatory and compliance issues; • Exposure to potential asset quality issues of the target company; • Difficulties, inefficiencies or cost overruns associated with the integration of the operations, personnel, technologies, services, and products of acquired companies with ours.
We maintain a system of policies and procedures designed to monitor vendor risks including, among other things, changes in the vendor’s organizational structure, changes in the vendor’s financial condition, and changes in the vendor’s support for existing products and services.
We maintain a system of policies and procedures designed to monitor vendor risks including, among other things, changes in the vendor’s organizational structure, financial condition, and support for existing products and services.
We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources. Such competitors primarily include national, regional, and internet banks within the various markets in which we operate.
Additionally, we face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources. Such competitors primarily include national, regional, and internet banks within the various markets in which we operate.
Risks Related Our Common Stock An investment in our common stock is not an insured deposit. Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC or by any other public or private entity.
Risks Related to Our Common Stock An investment in our common stock is not an insured deposit. Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC or by any other public or private entity.
Goodwill represents the amount of consideration exchanged over the fair value of net assets we acquired in the purchase of another business. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate the carrying value of the asset might be impaired. At December 31, 2023, our goodwill totaled $478.8 million.
Goodwill represents the amount of consideration exchanged over the fair value of net assets we acquired in the purchase of another business. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate the carrying value of the asset might be impaired. At December 31, 2024, our goodwill totaled $478.8 million.
Our acquisition activities could involve a number of additional risks, some of which are described in more detail elsewhere in this Report and include: the possibility that expected benefits may not materialize in the timeframe expected or at all, or may be more costly to achieve; using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target company or assets; incurring the time and expense required to integrate the operations and personnel of the combined businesses; the possibility that we will be unable to successfully implement integration strategies due to challenges associated with integrating complex 30 Table of Contents systems, technology, banking centers, and other assets of the acquired company in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies; the possibility of regulatory approval for the acquisition being delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues surrounding the Company, the target company, the assets acquired or the proposed combined entity; and losing key employees and customers as a result of an acquisition that is poorly received.
Our acquisition activities could involve a number of additional risks, some of which are described in more detail elsewhere in this Report and include: the possibility that expected benefits may not materialize in the timeframe expected or at all, or may be more costly to achieve; using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target company or assets; incurring the time and expense required to integrate the operations and personnel of the combined businesses; the possibility that we will be unable to successfully implement integration strategies due to challenges associated with integrating complex systems, technology, banking offices, and other assets of the acquired company in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies; the possibility of regulatory approval for the acquisition being delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues surrounding the Company, the target company, the assets acquired or the proposed combined entity; and losing key employees and customers as a result of an acquisition that is poorly received.
If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, the Company may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin.
If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, the Bank may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin.
The value or market price of our common stock could decline due to any of these identified or other unidentified risks. Risks Related to Our Business Changes and instability in economic conditions, geopolitical matters and financial markets, including a contraction of economic activity, could adversely impact our business, results of operations and financial condition.
The value or market price of our common stock could decline due to any of these identified or other unidentified risks. Risks Related to Our Business Changes and instability in economic conditions, geopolitical matters and financial markets, including a contraction of economic activity including a possible recession, could adversely impact our business, results of operations and financial condition.
Accordingly, we cannot be certain of our ability to raise additional capital in the future if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to conduct our business could be materially impaired. Consumers may decide not to use banks to complete their financial transactions.
Accordingly, we cannot be certain of our ability to raise additional capital in the future if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to conduct our business could be materially impaired. Consumers may decide not to use banks or specifically our Company to complete their financial transactions.
While we believe these policies and procedures help to mitigate risk, and our vendors are not the sole source of service, the failure of an external vendor to perform in accordance with applicable contractual arrangements or the service level agreements could be disruptive to our operations, which could have a material adverse impact on our business and its financial condition and results of operations.
While we believe these policies and procedures help to mitigate risk, and our vendors are not the sole source of service, the failure of an external vendor to perform in accordance with applicable contractual arrangements or the service level agreements 21 Table of Contents could be disruptive to our operations, which could have a material adverse impact on our business and its financial condition and results of operations.
In some cases, management must select the accounting policy 26 Table of Contents or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in reporting materially different results than would have been reported under a different alternative. Certain accounting policies are critical to presenting our financial condition and results.
In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in reporting materially different results than would have been reported under a different alternative. Certain accounting policies are critical to presenting our financial condition and results.
Such transactions could have a material effect on our operating results and financial condition, including short- and long-term liquidity, and could require us to issue a significant number of shares of common stock or other securities and/or to use a substantial amount of cash, other liquid assets, and/or incur debt.
Such transactions could have a material effect on our operating results and financial condition, including short- and long-term liquidity, and could require us to issue a significant number of 27 Table of Contents shares of common stock or other securities and/or to use a substantial amount of cash, other liquid assets, and/or incur debt.
Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.
Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those 23 Table of Contents deposits.
Instability and uncertainty in the commercial and residential real estate markets, as well as in the broader commercial and retail credit markets, could have a material adverse effect on our financial condition and results of operations. Inflation can have an adverse impact on our customers and their ability to repay.
Instability and uncertainty in the commercial and residential real estate markets, as well as in the broader commercial and retail credit markets, could have a material adverse effect on our financial condition and results of operations. Additionally, inflation risk can have an adverse impact on our customers ability to repay their loans.
While we use qualified third party vendors to test and audit our network, our network could become vulnerable to 27 Table of Contents unauthorized access, computer viruses, phishing schemes, and other security issues. The Bank may be required to spend significant capital and other resources to alleviate problems caused by security breaches or computer viruses.
While we use qualified third party vendors to test and audit our network, our network could become vulnerable to unauthorized access, computer viruses, phishing schemes, and other security issues. The Bank may be required to spend significant capital and other resources to alleviate problems caused by security breaches or computer viruses.
We rely on computer systems, hardware, software, technology infrastructure and online sites and networks for both internal and external operations that are critical to our business. Operational risk related to cyberattacks is 22 Table of Contents increasing as cyberattacks evolve and have a greater and more pervasive economic impact.
We rely on computer systems, hardware, software, technology infrastructure and online sites and networks for both internal and external operations that are critical to our business. Operational risk related to cyberattacks is increasing as cyberattacks evolve and have a greater and more pervasive economic impact.
We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.
We also may rely on representations of clients and 26 Table of Contents counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.
Our daily operations depend on the operational effectiveness of our technology to accurately track and record our assets and liabilities. Any failure, interruption, or breach in security of our computer systems or outside vendor technology could result in failures or disruptions in general ledger, deposit, loan, customer relationship management, and other systems leading to inaccurate financial records.
Our daily operations depend on the operational effectiveness of our technology. Any failure, interruption, or breach in security of our computer systems or outside vendor technology could result in failures or disruptions in general ledger, deposit, loan, customer relationship management, and other systems leading to inaccurate financial records.
In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.
As customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.
Reputation risk, or the risk to our business, earnings, and capital from negative public opinion regarding our Company and the financial services industry in general, is inherent in our business.
Negative public opinion regarding our Company and the financial services industry in general, could damage our reputation and adversely impact our earnings. Reputation risk, or the risk to our business, earnings, and capital from negative public opinion regarding our Company and the financial services industry in general, is inherent in our business.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations. Failure to keep pace with technological change could adversely affect our business.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.
In addition, we cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.
In addition, we cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all. We rely heavily on communications and information systems to conduct our business.
New lines of business or new products and services may subject us to additional risk. From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed.
From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. We may invest significant time and resources in these efforts.
For additional information regarding uninsured deposits and liquidity, see Deposits and Liquidity sections of 2023 MD&A Item 7 following. Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
For additional information regarding uninsured deposits and liquidity, see Deposits and Liquidity sections of 2024 MD&A Item 7 following. Cybersecurity incidents or other disruptions of communications or information systems could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our markets, years of industry experience, and/or the difficulty of promptly finding qualified replacement personnel. Loss of key employees may disrupt relationships with certain customers.
The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our markets, years of industry experience, and/or the difficulty of promptly finding qualified replacement personnel.
This spread may be exacerbated by higher prevailing interest rates. In addition, because our AFS investment securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may be diminished during periods when interest rates are elevated.
Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits. This spread may be exacerbated by higher prevailing interest rates. In addition, because our AFS investment securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may be diminished during periods when interest rates are elevated.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
Failure to keep pace with technological change could adversely affect our business. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
If our third party vendor encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations. We rely on certain external vendors.
Additionally, if our third party vendors encounter difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations.
Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits.
Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of elevated prevailing interest rates, such as the present period. Our ability to attract depositors during a time of actual or perceived distress or instability in the 20 Table of Contents marketplace may be limited.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, as experienced in 2023, our net interest income, and therefore earnings, will generally be adversely affected.
Although not necessarily expected in 2025, if the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, would generally be adversely affected.
We may invest significant time and resources in these efforts. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible.
Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible.
Risk of loan defaults is unavoidable in the banking industry. We attempt to limit exposure to this risk by monitoring carefully the amount of loans in specific industries and by exercising prudent lending practices. However, the risk that substantial credit losses could result in reduced earnings or losses cannot be eliminated.
We attempt to limit exposure to this risk by monitoring carefully the amount of loans in specific industries and by exercising prudent lending practices. However, the risk that substantial credit losses could result in reduced earnings or losses cannot be eliminated. Our ACL may not be adequate to cover actual losses.
Because of the extensive use of estimates and assumptions, our actual loan losses could differ, possibly significantly, from our estimate and it is possible that the ACL will need to be increased for changes in economic forecasts, credit deterioration, or that regulators will require us to increase this allowance.
Because of the extensive use of estimates and assumptions, our actual loan losses could differ, possibly significantly, from our estimate and it is possible that the ACL will need to be increased for changes in economic forecasts, credit deterioration, or regulatory feedback. An increase in the ACL could materially and adversely affect our earnings, profitability and capital levels.
Although we have historically paid cash dividends, there is no assurance that we will continue to pay cash dividends. Future payment of cash dividends, if any, will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant.
Future payment of cash dividends, if any, will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant.
As we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral, which, in turn, can adversely affect the value of our loan and investment portfolios. While CRE values continue to fluctuate, some markets are showing signs of stabilizing prices.
As we have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral, which, in turn, can adversely affect the value of our loan and investment portfolios.
In its assessment of the bank failures occurring in the first and second quarters of 2023, the FDIC concluded that a significant contributing factor to the failures of the institutions was the proportion of the deposits held by each institution that exceeded FDIC insurance limits. Uninsured deposits historically have been viewed by the FDIC as less stable than insured deposits.
In its assessment of the larger bank failures that occurred in the first and second quarters of 2023, the FDIC concluded that a significant contributing factor to the failures of the institutions was the proportion of the deposits held by each institution that exceeded FDIC insurance limits.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition. We may not be able to attract and retain skilled employees, adversely affecting our business.
It remains uncertain whether the FOMC will further increase the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels, begin to reduce the federal funds rate or leave the rate at its current elevated level for a lengthy period of time.
It remains uncertain whether then FOMC will further decrease the federal funds rate to attain a monetary policy appropriate to keep inflation at normalized levels, leave the rate at its current level for a lengthy period of time or if it will resume increasing the target range.
An investment in our common stock is inherently risky for the reasons described in this "Risk 29 Table of Contents Factors" section and elsewhere in this Report and is subject to the same market forces that affect the price of common stock in any company.
An investment in our common stock is inherently risky for the reasons described in this "Risk Factors" section and elsewhere in this Report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment.
Further, the deterioration of borrowers' businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on our financial condition and results of operations. Our ACL may not be adequate to cover actual losses.
Further, the deterioration of borrowers' businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on our financial condition and results of operations. Risk of loan defaults is unavoidable in the banking industry.
In July 2023, the federal banking agencies issued an interagency policy statement to underscore the importance of robust liquidity risk management and contingency funding planning.
Uninsured deposits historically have been viewed by the FDIC as less stable than insured deposits. In July 2023, the federal banking agencies issued an interagency policy statement to underscore the importance of robust liquidity risk management and contingency funding planning.
The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. Negative public opinion regarding our Company and the financial services industry in general, could damage our reputation and adversely impact our earnings.
The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.
Our inability to prevent, detect, and respond to cyberattacks may lead to reputational damage, litigation with third parties, and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations. From time to time, we engage in acquisitions, including acquisitions of depository institutions.
Our inability to prevent, detect, and respond to cyberattacks may lead to reputational damage, litigation with third parties, and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations. In the normal course of business, we process large volumes of transactions involving millions of dollars.
Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings.
We are subject to interest rate risk, which could negatively impact earnings. Net interest income is the most significant component of our earnings. Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings.
An inability to raise funds through from these or other sources could have a substantial negative effect on our liquidity. 21 Table of Contents Our access to funding sources in amounts adequate to finance our activities, or on terms which are acceptable to us, could be impaired by factors that affect us specifically or the financial services industry or economy in general.
Our access to funding sources in amounts adequate to finance our activities, or on terms which are acceptable to us, could be impaired by factors that affect us specifically or the financial services industry or economy in general.
Shares of the common stock are equity interests in us and do not constitute indebtedness. As such, shares of the common stock rank junior to all of our indebtedness and to other non-equity claims against us and our assets available to satisfy claims against us, including our liquidation.
As such, shares of the common stock rank junior to all of our indebtedness and to other non-equity claims against us and our assets available to satisfy claims against us, including our liquidation. Upon liquidation, lenders and holders of our debt securities, would receive distributions of our available assets prior to holders of our common stock.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations. 24 Table of Contents New lines of business or new products and services may subject us to additional risk.
We also face competition from many other types of financial institutions, including, without limitation, thrifts, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries, such as online lenders and 25 Table of Contents banks. The financial services industry could become even more competitive as a result of legislative and regulatory changes and continued consolidation.
We also face competition from many other types of financial institutions, including, without limitation, thrifts, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries, such as online lenders and banks.
This regulation and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the DIF and our depositors and borrowers, rather than for holders of our equity securities and creditors. In the past, our business has been materially affected by these regulations. This trend is likely to continue in the future.
The Bank is subject to extensive regulation and supervision by the Commissioner and the Federal Reserve. This regulation and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the DIF and our depositors and borrowers, rather than for holders of our equity securities and creditors.
This risk also includes potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards. We establish and maintain systems of internal operational controls that provide us with timely and accurate information about our level of operational risk.
This risk also includes potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards.
Failure to successfully integrate the entities we acquire into our existing operations could increase our operating costs significantly and have a material adverse effect on our business, financial condition, and results of operations. Attractive acquisition or expansion opportunities may not be available to us in the future.
Failure to successfully integrate the entities we acquire into our existing operations could increase our operating costs significantly and have a material adverse effect on our business, financial condition, and results of operations. If the goodwill that we recorded in connection with a business acquisition becomes impaired, it could have a significant negative impact on our profitability.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
The Department of Justice, the CFPB, and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
Focus on commercial loans may increase the risk of substantial credit losses. We offer a variety of loan products, including residential mortgage, consumer, construction, and commercial loans, with a majority of our portfolio consisting of commercial and industrial loans and commercial loans secured by commercial real estate.
We offer a variety of loan products, including residential mortgage, consumer, construction, and commercial loans, with a majority of our portfolio consisting of commercial and industrial loans and commercial loans secured by commercial real estate. Most of our commercial business and commercial real estate loans are made to small business or middle-market customers.
We face a risk of noncompliance with the BSA and other AML statutes and regulations and related enforcement actions. The BSA, the 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.
Changes in the regulations that apply to us, or changes in our compliance with regulations, could have a material impact on our operations. The BSA, the 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.
Additionally, these loans may increase concentration risk as to industry or collateral securing our loans. If general economic conditions in the market areas in which we operate negatively impact this customer sector, our results of operations and financial condition may be adversely affected.
Lending generally involves various degrees of risk pending on the facts and circumstances of the loan and borrower. If general economic conditions in the market areas in which we operate negatively impact this customer sector, our results of operations and financial condition may be adversely affected.
While the inflation rate has responded favorably to actions taken by the Federal Reserve, our customers may continue be affected by inflation pressures and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us or to finance future home purchases.
Our customers may be affected by inflation pressures and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their cash flows and their ability to repay their loans to us. 18 Table of Contents Lending activities involve substantial credit risk.
These systems have been designed to manage operational risk at appropriate, cost-effective levels. Procedures exist that are designed to ensure that policies relating to conduct, ethics, and business practices are followed. We continually monitor and improve our internal controls, data processing systems, and corporate-wide processes and procedures, but there can be no assurance that future losses will not occur.
These systems have been designed to manage operational risk at appropriate, cost-effective levels. Procedures exist that are designed to ensure that policies relating to conduct, ethics, and business practices are followed.
Lack of system integrity or credit quality related to funds settlement could result in a financial loss. We settle funds on behalf of financial institutions, other businesses and consumers and receive funds from clients, card issuers, payment networks and consumers on a daily basis for a variety of transaction types.
As part of these transactions, we settle funds on behalf of financial institutions, other businesses and consumers and receive funds from clients, card issuers, payment networks and consumers on a daily basis for a variety of transaction types. Transactions we facilitate include wire transfers, debit card, credit card and electronic bill payment transactions, supporting consumers, financial institutions and other businesses.
In the normal course of business, we process large volumes of transactions involving millions of dollars. If our internal controls fail to work as expected, we could experience significant losses.
If our internal controls fail to work as expected, we could experience significant losses.
Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in the Bank’s systems and could adversely affect its reputation and its ability to generate deposits. Additionally, we outsource the processing of our core data system, as well as other systems such as online banking, to third party vendors.
Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in the Bank’s systems and could adversely affect its reputation and its ability to generate deposits. We rely on certain external vendors. We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations.
We may not be able to attract and retain skilled people. Our success depends, in large part, on our ability to attract and retain skilled people. Competition for the best people in most activities engaged in by us can be intense, and we may not be able to hire sufficiently skilled people or to retain them.
Competition for the best people can be intense, and we may not be able to hire or retain sufficiently qualified people.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing also could have serious reputational consequences for us. We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing also could have serious reputational consequences for us. Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets, and the determination of the level of ACL. Changes in the regulations that apply to us, or changes in our compliance with regulations, could have a material impact on our operations.
In the past, our business has been materially affected by these regulations. This trend is likely to continue in the future. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets, and the determination of the level of ACL.
Our business is primarily relationship-driven in that many of our key employees have extensive customer relationships. Loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor or otherwise choose to transition to another financial services provider.
The loss of business if the customers were to follow that employee to a competitor or otherwise choose to transition to another financial services provider could adversely impact our business. While we believe we have strong relationships with our key personnel, there is no guarantee that all of our key personnel will remain with our organization.
Any contraction of economic activity, including an economic recession, may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings. In particular, interest rates are highly sensitive to many factors that are beyond our control, including global, domestic and local economic conditions and the policies of various governmental and regulatory agencies and, specifically, the Federal Reserve.
In particular, interest rates are highly sensitive to many factors that are beyond our control, including global, domestic and local economic conditions and the policies of various governmental and regulatory agencies and, specifically, the Federal Reserve. Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate on eleven separate occasions.
As a result, if you acquire our common stock, you may lose some or all of your investment. Common stock is equity and is subordinate to our existing and future indebtedness and preferred stock and effectively subordinated to all the indebtedness and other non-common equity claims against our subsidiaries.
Common stock is equity and is subordinate to our existing and future indebtedness and effectively subordinated to all the indebtedness and other non-common equity claims against our subsidiaries. Shares of our common stock are equity interests in the Company and do not constitute indebtedness.
Our success depends, to a certain extent, upon global, domestic and local economic and political conditions, as well as governmental monetary policies. Conditions such as changes in interest rates, money supply, levels of employment and other factors beyond our control may have a negative impact on economic activity.
Conditions such as changes in interest rates, money supply, levels of employment and other factors beyond our control may have a negative impact on economic activity. A deterioration in economic conditions, including an economic recession, may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings.
Therefore, the FOMC increased the target range eleven times throughout 2022 and 2023. As of December 31, 2023, the target range for the federal funds rate had been increased to 5.25% - 5.50%.
Therefore, the FOMC increased the target range eleven times throughout 2022 and 2023. In the latter months of 2024, due to lower, more consistent inflation levels, the Federal Reserve lowered its federal funds target rate by 100 basis points. As of 19 Table of Contents December 31, 2024, the target range for the federal funds rate was 4.25% - 4.50%.
We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with applicable contractual arrangements or service level agreements.
We outsource the processing of our core data system, as well as other systems such as online banking, to third party vendors. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with applicable contractual arrangements or service level agreements.
If the continuity of our operations or integrity of our processing were compromised, this could result in a financial loss to us due to a failure in payment facilitation. In addition, we may issue credit to consumers, financial institutions or 23 Table of Contents other businesses as part of the funds settlement.
These payment activities rely upon the technology infrastructure that facilitates the verification of activity with counterparties and the facilitation of the payment. If the continuity of our operations or integrity of our processing were compromised, this could result in a financial loss to us due to a failure in payment facilitation.
Borrowings also provide us with a source of funds to meet liquidity demands.
Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through from these or other sources could have a substantial negative effect on our liquidity.
It also may result in small changes to future forecasts having a significant impact on the ACL, which could make the ACL more volatile.
The CECL methodology also may result in perceived small changes to future forecasts having a disproportionate impact on the ACL and resulting provision for loan losses from period to period.
However, the outlook for CRE remains dependent on the broader economic environment and, specifically, how major subsectors respond to a rising interest rate environment and higher prices for commodities, goods and services. Credit performance over the medium- and long-term is susceptible to economic and market forces and therefore forecasts remain uncertain.
CRE values continue to fluctuate and the outlook for CRE remains dependent on the broader economic environment and, specifically, how major subsectors respond to ongoing economic and behavioral developments. Some economic indicators suggest that CRE prices remain high relative to fundamentals and US market delinquency rates are elevated. Credit performance over is susceptible to economic and market forces.
Defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. We could experience losses due to competition with other financial institutions and non-banks.
In addition, the financial stability of other financial institutions could adversely impact our ability to engage in routine funding transactions. Defaults by, or even rumors or questions about one or more financials institutions can lead to market-wide liquidity challenges and could lead to losses or defaults by us or by other institutions.
As a result, negotiations may take place and future mergers or acquisitions involving cash, debt, or equity securities may occur at any time. We seek merger and acquisition partners that are culturally similar, have experienced management, and possess either significant market presence or have potential for improved profitability through financial management, economies of scale, or expanded services.
As a result, negotiations may take place and future mergers or acquisitions involving cash, debt, or equity securities may occur at any time.
This is expected to increase the complexity and associated model assumption risk, particularly in times of economic uncertainty or other unforeseen circumstances, which could impact the Company's results of operations and capital levels.
These factors involve model risk and are complex and could impact the Company's results of operations and capital levels, particularly in times of economic uncertainty or other unforeseen circumstances. CECL requires a high degree of judgment related to risk characteristics, asset classification, loss drivers, impact of historical loss data and other factors to develop an estimate of expected lifetime losses.
Further, expected revenue and/or operational synergies and cost savings associated with pending or recently completed acquisitions may not be fully realized or realized within the expected time frame. If the goodwill that we recorded in connection with a business acquisition becomes impaired, it could have a significant negative impact on our profitability.
Further, expected revenue and/or operational synergies and cost savings associated with pending or recently completed acquisitions may not be fully realized or realized within the expected time frame; • Inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits; • Potential disruption to our business; and • The possible loss of key employees and customers of the target company.
The Company's focus on lending to small- to mid-sized community-based businesses may increase its credit risk. Most of our commercial business and commercial real estate loans are made to small business or middle-market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions.
These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. Additionally, these loans may increase concentration risk as to industry or collateral securing our loans. Future growth or acquisitions of banks with a portfolio composition different from ours could cause our portfolio mix to change.
Upon liquidation, lenders and holders of our debt securities and any preferred stock that may be outstanding, would receive distributions of our available assets prior to holders of our common stock. There can be no assurance that we will continue to pay cash dividends .
There can be no assurance that we will continue to pay cash dividends . Although we have historically paid cash dividends on our common stock, there is no assurance that we will continue to pay cash dividends.
Removed
Throughout 2022 and 2023, the FOMC raised the target range for the federal funds rate on eleven separate occasions, citing factors including the hardships caused by the ongoing Russia-Ukraine conflict, continued global supply chain disruptions and imbalances, and increased inflationary pressure.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

9 edited+2 added−0 removed11 unchanged
Biggest changeTo our knowledge, neither cybersecurity threats, nor the results including as a result of any previous cybersecurity incidents have materially affected the Company, including its business strategy, results of operations or financial condition. With regard to the possible impact of future cybersecurity threats or incidents, see Item 1A, Risk Factors - Risks Related to Out Business .
Biggest changeIn addition, members of our management hold varying levels of relevant cybersecurity certifications. To our knowledge, neither cybersecurity threats, nor the results including as a result of any previous cybersecurity incidents have materially affected the Company, including its business strategy, results of operations or financial condition.
As one of the elements of the Company’s overall enterprise-wide risk management approach, the Information Security Program is focused on the following key areas: • Security Operation and Governance: The Board has delegated to senior management responsibility for the Information Security Program which is managed through the IT Steering Committee, which maintains alignment and appropriate insight regarding information security activities. • Collaborative Approach: The Company has implemented a cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner. • Security Competencies: The Information Security department oversees a program of security competencies and tools designed to protect the confidentiality, integrity, and availability of our data.
As one of the elements of the Company’s overall enterprise-wide risk management approach, our Information Security Program is focused on the following key areas: • Security Operation and Governance: The Board has delegated to senior management responsibility for the Information Security Program which is managed through the IT Steering Committee, which maintains alignment and appropriate insight regarding information security activities. • Collaborative Approach: The Company has implemented a cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner. • Security Competencies: The Information Security department oversees a program of security competencies and tools designed to protect the confidentiality, integrity, and availability of our data.
The Board Risk Committee also receives information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. The full Board receives reports from the Board Risk Committee related to information cybersecurity.
The Risk Committee also receives information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. The full Board receives reports from the Risk Committee related to information cybersecurity.
The Company’s Incident Response Plan helps reduce the risks related to security incidents by providing guidelines on responding to incidents. • Third-Party Risk Management: Management of the Company’s third parties, including vendors and service providers, is conducted through a risk-based approach and the level of due diligence is driven from risk factors established by our Risk Management department.
The Company’s Incident Response Plan helps reduce the risks related to security incidents by providing guidelines on responding to incidents. • Third-Party Risk Management: Management of the Company’s third parties, including vendors and service providers, is conducted through a risk-based approach and the level of due diligence is driven from risk factors established by our Risk Management program.
Through ongoing communications with these teams, the CIO, Information Security, and Risk Management teams monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time, and report such threats and incidents to the Corporate Crisis Management Team and ultimately the Board when appropriate.
Through ongoing communications with these teams, the COO, Information Security, and Risk Management teams monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time, and report such threats and incidents to the Corporate Crisis Management Team and ultimately the Board when appropriate.
Our Chief Information Officer ("CIO"), works collaboratively across the Company to implement a program designed to protect the Company’s information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with the Company’s Incident Response Plans including an assessment of the potential materiality of any cybersecurity incident.
Our Chief Operating Officer ("COO"), works collaboratively across the Company to implement a program designed to protect the Company’s information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with the Company’s Incident Response Plans, including an assessment of the potential materiality of any cybersecurity incident.
The Board Risk Committee reviews and approves the Information Security Program and receives regular presentations which include updates on cybersecurity risks, including the threat environment, evolving standards, projects and initiatives, vulnerability assessments, third-party and independent reviews, technological trends and information security considerations arising with respect to the Company’s peers and third parties.
The Risk Committee receives periodic presentations which include updates on cybersecurity risks, including the threat environment, evolving standards, projects and initiatives, vulnerability assessments, third-party and independent reviews, technological trends and information security considerations arising with respect to the Company’s peers and third parties.
The process provides awareness and collaboration across internal teams including Information Security and Business Continuity. A Technical Requirements review process is conducted on new or significantly changed third parties, applications, or technology to ensure that systems or third parties meet certain security baseline requirements.
The process provides awareness and collaboration 28 Table of Contents across internal teams including, but not limited to, Information Technology, Information Security and Business Continuity. In addition to ongoing monitoring of select vendors, a review is conducted on new or significantly changed third parties, applications, and technology to ensure that systems and third parties meet certain baseline requirements.
This process is aimed at advocating the necessary security, infrastructure, and application standards or controls so that information systems and the third party have recovery plans in place. • Security Awareness and Education: The Company provides annual, mandatory training for personnel regarding security awareness as a means to equip the Company’s personnel with the understanding of how 31 Table of Contents to properly use and protect the computing resources entrusted to them, and to communicate the Company’s information security policies, standards, processes and practices.
This process is used to identify and monitor risks in vendor arrangements and assists management in establishing appropriate risk responses. • Security Awareness and Education: The Company provides annual, mandatory training for personnel regarding security awareness as a means to equip the Company’s personnel with the understanding of how to properly use and protect the computing resources entrusted to them, and to communicate the Company’s information security policies, standards, processes and practices.
Added
We believe our Board and management, including the Chief Operating Officer, have the appropriate expertise, background, and depth of experience to manage risks arising from cybersecurity threats, including applicable knowledge gained through industry experience, internal and external training, and periodic discussions with consultants and peers with applicable knowledge and expertise.
Added
With regard to the possible impact of future cybersecurity threats or incidents, see Item 1A, Risk Factors - Risks Related to Out Business .

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed1 unchanged
Biggest changeThe Company owned all of its bank branch premises except 17 branch offices for which the land and buildings are leased and 10 branch offices for which the land is leased but the building is owned. The Bank also leases several other office locations for administrative functions and for our SBA-related activities.
Biggest changeThe Company owned all of its bank branch premises except 13 branch offices for which the 29 Table of Contents land and buildings are leased and nine branch offices for which the land is leased but the building is owned. The Bank also leases several other office locations for administrative functions.
The Bank’s operational departments, including accounting functions, information technology operations, loan operations, and deposit operations, are primarily housed in buildings in Greensboro North Carolina, Dunn North Carolina, Fletcher North Carolina, and Troy North Carolina, which are owned by the Bank. At December 31, 2023, the Company operated 118 bank branches.
The Bank’s operational departments, including accounting functions, information technology operations, loan operations, and deposit operations, are primarily housed in buildings in Greensboro, North Carolina; Dunn, North Carolina; Fletcher, North Carolina; and Troy, North Carolina, which are owned by the Bank. At December 31, 2024, the Company operated 113 bank branches.
There are no options to purchase or lease additional properties. The Company considers its facilities adequate to meet current needs and believes that lease renewals or replacement properties can be acquired as necessary to meet future needs. 32 Table of Contents
There are no options to purchase or lease additional properties. The Company considers its facilities adequate to meet current needs and believes that lease renewals or replacement properties can be acquired as necessary to meet future needs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+2 added−1 removed2 unchanged
Biggest changeFirst Bancorp Comparison of Five-Year Total Return Performances (1) Five Years Ended December 31, 2023 Total Return Index Values (1) December 31, 2018 2019 2020 2021 2022 2023 First Bancorp $ 100.00 123.99 108.22 148.98 142.78 126.72 Russell 2000 Index 100.00 125.52 150.58 172.90 137.56 160.85 S&P US BMI Banks Industry Group Index 100.00 137.36 119.83 162.92 135.13 147.41 _____________ (1) Total return indices were provided from an independent source, S&P Global Market Intelligence, New York, New York, and assume initial investment of $100 on December 31, 2018, reinvestment of dividends, and changes in market values.
Biggest changeFirst Bancorp Comparison of Five-Year Total Return Performances (1) Five Years Ended December 31, 2024 Total Return Index Values (1) December 31, 2019 2020 2021 2022 2023 2024 First Bancorp $ 100.00 $ 87.28 $ 120.15 $ 115.15 $ 102.20 $ 124.28 Russell 2000 Index 100.00 119.96 137.74 109.59 128.14 142.93 S&P US BMI Banks Industry Group Index $ 100.00 $ 87.24 $ 118.61 $ 98.38 $ 107.32 $ 143.68 _____________ (1) Total return indices were provided from an independent source, S&P Global Market Intelligence, New York, New York, and assume initial investment of $100 on December 31, 2019, reinvestment of dividends, and changes in market values.
BMI Banks Industry Group Index, as constructed by S & P Global (reflecting performance in broad market banking industry stocks). The graph and table assume that $100 was invested on December 31, 2018 in each of the Company’s common stock, the Russell 2000 Index, and the S&P U.S. BMI Banks Industry Group Index, and that all dividends were reinvested.
BMI Banks Industry Group Index, as constructed by S & P Global (reflecting performance in broad market banking industry stocks). The graph and table assume that $100 was invested on December 31, 2019 in each of the Company’s common stock, the Russell 2000 Index, and the S&P U.S. BMI Banks Industry Group Index, and that all dividends were reinvested.
For each quarter in 2023, we declared a cash dividend of $0.22 per common share. For the foreseeable future, it is our current intention to continue to pay regular cash dividends on a quarterly basis. However, our ability to pay future cash dividends can be restricted or eliminated by regulatory authorities.
For each quarter in 2024, we declared a cash dividend of $0.22 per common share. For the foreseeable future, it is our current intention to continue to pay regular cash dividends on a quarterly basis. However, our ability to pay future cash dividends can be restricted or eliminated by regulatory authorities.
As of February 27, 2024, there were approximately 3,635 shareholders of record and another approximately 17,059 shareholders whose stock is held in “street name.” The tables in Item 7 under "Selected Financial Information" section also include information regarding cash dividends declared per share of common stock for the periods presented.
As of February 21, 2025, there were approximately 3,490 shareholders of record and another approximately 21,528 shareholders whose stock is held in “street name.” The tables in Item 7 under "Selected Financial Information" section also include information regarding cash dividends declared per share of common stock for the periods presented.
As of December 31, 2023, there was no share repurchase program in place. 33 Table of Contents Performance Graph The performance graph shown below compares the Company’s cumulative total return to shareholders for the five-year period commencing December 31, 2018 and ending December 31, 2023, with the cumulative total return of the Russell 2000 Index (reflecting overall stock market performance of small-capitalization companies), and the S&P U.S.
No repurchases of any shares of the Company's common stock were made in 2024 or in 2025 through the date of this Annual Report in Form 10-K. 30 Table of Contents Performance Graph The performance graph shown below compares the Company’s cumulative total return to shareholders for the five-year period commencing December 31, 2019 and ending December 31, 2024, with the cumulative total return of the Russell 2000 Index (reflecting overall stock market performance of small-capitalization companies), and the S&P U.S.
Securities authorized for issuance under equity compensation plans Refer to “Additional Information Regarding the Registrant’s Equity Compensation Plans” in Item 12. Issuer Purchases of Equity Securities Pursuant to authorizations by the Board, the Company from time to time has repurchased shares of common stock in private transactions and in open-market purchases.
Securities authorized for issuance under equity compensation plans Refer to “Additional Information Regarding the Registrant’s Equity Compensation Plans” in Item 12.
Removed
The Company did not repurchase any shares of the Company's common stock during either 2023 or 2022.
Added
Issuer Purchases of Equity Securities Beginning in January 2024 and continuing through 2025, the Board of Directors of the Company has authorized the repurchase of up to $40 million in shares of the Company’s common stock in private transactions and open market purchases.
Added
Any such repurchases would be made pursuant to a plan approved by and containing provisions about the timing, purchase prices and quantities purchased determined by management in its discretion.

Item 7. Management's Discussion & Analysis

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

120 edited+43 added−48 removed81 unchanged
Biggest changeRate Interest Earned or Paid Assets Loans (1) (2) $ 7,902,628 5.30 % $ 418,668 6,293,280 4.42 % 278,027 5,018,391 4.36 % 219,013 Taxable securities 2,920,040 1.79 % 52,276 3,059,683 1.75 % 53,536 2,204,713 1.45 % 32,076 Non-taxable securities 296,287 1.51 % 4,485 296,803 1.48 % 4,387 162,878 1.49 % 2,402 Short-term investments, primarily interest-bearing cash 314,537 4.24 % 13,330 339,419 1.48 % 5,007 485,337 0.50 % 2,427 Total interest-earning assets 11,433,492 4.27 % 488,759 9,989,185 3.41 % 340,957 7,871,319 3.25 % 255,918 Cash and due from banks 93,182 104,374 90,275 Premises and equipment 151,980 135,160 125,738 Other assets 354,379 327,511 408,313 Total assets $ 12,033,033 10,556,230 8,495,645 Liabilities and Equity Interest-bearing checking $ 1,457,272 0.42 % $ 6,192 1,545,573 0.08 % 1,219 1,353,172 0.07 % 919 Money market deposits 3,355,992 2.34 % 78,643 2,515,897 0.22 % 5,610 1,923,614 0.16 % 3,158 Savings deposits 668,730 0.15 % 1,024 739,681 0.06 % 459 607,452 0.07 % 443 Other time deposits 737,330 2.58 % 19,023 551,852 0.46 % 2,541 432,506 0.39 % 1,722 Time deposits >$250,000 343,669 2.90 % 9,984 287,194 0.53 % 1,520 356,398 0.46 % 1,639 Total interest-bearing deposits 6,562,993 1.75 % 114,866 5,640,197 0.20 % 11,349 4,673,142 0.17 % 7,881 Short-term borrowings 374,254 5.15 % 19,289 52,446 3.45 % 1,808 — — % — Long-term borrowings 99,858 7.96 % 7,946 65,358 4.51 % 2,946 63,201 2.60 % 1,642 Total interest-bearing liabilities 7,037,105 2.02 % 142,101 5,758,001 0.28 % 16,103 4,736,343 0.13 % 9,523 Noninterest-bearing checking 3,613,973 3,643,308 2,728,768 Total sources of funds 10,651,078 1.33 % 9,401,309 0.17 % 7,465,111 0.13 % Other liabilities 88,870 58,008 60,759 Shareholders’ equity 1,293,085 1,096,913 969,775 Total liabilities and shareholders’ equity $ 12,033,033 10,556,230 8,495,645 Net yield on interest-earning assets and net interest income 3.03 % $ 346,658 3.25 % 324,854 3.13 % 246,395 Net yield on interest-earning assets and net interest income – tax-equivalent (3) 3.06 % $ 349,537 3.28 % 327,634 3.16 % 248,638 Interest rate spread 3.15 % 3.29 % 3.14 % Average prime rate 8.20 % 4.86 % 3.25 % (1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.
Biggest changeRate Assets Loans (1) (2) $ 8,046,681 $ 441,181 5.48 % $ 7,902,628 $ 418,853 5.30 % $ 6,293,319 $ 278,188 4.42 % Taxable securities 2,608,494 47,510 1.82 % 2,920,040 52,276 1.79 % 3,059,683 53,536 1.75 % Non-taxable securities 291,520 4,466 1.53 % 296,287 4,485 1.51 % 296,803 4,387 1.48 % Short-term investments, primarily interest-bearing cash 561,886 26,083 4.64 % 314,537 13,330 4.24 % 339,437 5,007 1.48 % Total interest-earning assets 11,508,581 519,240 4.51 % 11,433,492 488,944 4.28 % 9,989,242 341,118 3.41 % Cash and due from banks 84,997 93,182 104,374 Premises and equipment 147,916 151,980 135,163 Other assets 393,001 354,379 327,993 Total assets $ 12,134,495 $ 12,033,033 $ 10,556,772 Liabilities and Equity Interest-bearing checking $ 1,395,856 $ 9,910 0.71 % $ 1,457,272 $ 6,192 0.42 % $ 1,545,573 $ 1,219 0.08 % Money market deposits 4,039,999 126,531 3.13 % 3,355,992 78,643 2.34 % 2,515,897 5,610 0.22 % Savings deposits 564,473 1,209 0.21 % 668,730 1,024 0.15 % 739,681 459 0.06 % Other time deposits 666,868 20,429 3.06 % 737,330 19,023 2.58 % 551,852 2,541 0.46 % Time deposits >$250,000 373,851 14,006 3.75 % 343,669 9,984 2.90 % 287,194 1,520 0.53 % Total interest-bearing deposits 7,041,047 172,085 2.44 % 6,562,993 114,866 1.75 % 5,640,197 11,349 0.20 % Short-term borrowings 137,692 7,116 5.17 % 374,254 19,289 5.15 % 52,273 1,828 3.50 % Long-term borrowings 95,275 7,766 8.15 % 99,858 7,946 7.96 % 65,531 2,926 4.46 % Total interest-bearing liabilities 7,274,014 186,967 2.57 % 7,037,105 142,101 2.02 % 5,758,001 16,103 0.28 % Noninterest-bearing checking 3,367,035 3,613,973 3,643,330 Total sources of funds 10,641,049 1.76 % 10,651,078 1.33 % 9,401,331 0.17 % Other liabilities 76,985 88,870 58,056 Shareholders’ equity 1,416,461 1,293,085 1,097,385 Total liabilities and shareholders’ equity $ 12,134,495 $ 12,033,033 $ 10,556,772 Net yield on interest-earning assets and net interest income $ 332,273 2.89 % $ 346,843 3.03 % $ 325,015 3.25 % Net yield on interest-earning assets and net interest income – tax-equivalent (3) $ 335,256 2.91 % $ 349,537 3.06 % $ 327,795 3.28 % Interest rate spread 1.94 % 2.26 % 3.13 % Average prime rate 8.31 % 8.20 % 4.86 % (1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.
Presented in the table below is the amount of accretion which increased net interest income in each year.
Presented in the table below is the amount of accretion which increased net interest income in each year presented.
The extent to which the current economic conditions have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including actions taken by governmental authorities response to inflationary trends and recessionary risks.
The extent to which the current economic conditions have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including actions taken by governmental authorities in response to inflationary trends and recessionary risks.
Our ACL is assessed at each balance sheet date and adjustments are recorded in the provision for loan losses on the consolidated statements of income. There are many factors affecting the ACL, some of which are quantitative, while others require qualitative judgment.
Our ACL is assessed at each quarterly balance sheet date and adjustments are recorded in the provision for loan losses on the consolidated statements of income. There are many factors affecting the ACL, some of which are quantitative, while others require qualitative judgment.
As demonstrated in the table above, while there has been some variations in the relative percentage of each loan category to the total portfolio over the years, the nature of our portfolio has not changed drastically from the prior year or the historical averages.
As demonstrated in the table above, while there have been some variations in the relative percentage of each loan category to the total portfolio over the years, the nature of our portfolio has not changed drastically from the prior year or the historical averages.
In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions. 50 Table of Contents The following table sets forth the allocation of the ACL by loan category at the dates indicated.
In addition, bank regulatory authorities, as part of their periodic examination of the 48 Table of Contents Bank, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions. The following table sets forth the allocation of the ACL by loan category at the dates indicated.
This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in forward-looking statements as a result of various factors. Overview and 2023 Highlights The Company is a bank holding company headquartered in Southern Pines, North Carolina.
This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in forward-looking statements as a result of various factors. Overview and 2024 Highlights The Company is a bank holding company headquartered in Southern Pines, North Carolina.
During 2023 there were no triggers warranting interim impairment assessments and for the 2023 annual assessment, we concluded that it was more likely than not that the fair value exceeded its carrying value. At December 31, 2023, we had $478.8 million of goodwill.
During 2024 there were no triggers warranting interim impairment assessments and for the 2024 annual assessment, we concluded that it was more likely than not that the fair value exceeded its carrying value. At December 31, 2024, we had $478.8 million of goodwill.
We also maintain available lines of credit from the FHLB and the Federal Reserve, as well as federal funds lines from several correspondent banks which are summarized below. At December 31, 2023, the Company had several sources of readily available borrowing capacity as described above in the Borrowings section.
We also maintain available lines of credit from the FHLB and the Federal Reserve, as well as federal funds lines from several correspondent banks which are summarized below. At December 31, 2024, the Company had several sources of readily available borrowing capacity as described above in the Borrowings section.
At December 31, 2023, the Company's derivative financial instruments consist entirely of customer back-to-back interest rate swaps which are not designated as hedges. Under this program, the Company executes interest rate swaps with commercial banking customers to facilitate their risk management strategies.
At December 31, 2024, the Company's derivative financial instruments consist entirely of customer back-to-back interest rate swaps which are not designated as hedges. Under this program, the Company executes interest rate swaps with commercial banking customers to facilitate their risk management strategies.
Recent Accounting Standards and Pronouncements For information relating to recent accounting standards and pronouncements, see Note 1 to our consolidated financial statements entitled “Summary of Significant Accounting Policies.” RESULTS OF OPERATIONS The following discussion reviews the results of operations and key drivers to change in the results of 2023 as compared to 2022.
Recent Accounting Standards and Pronouncements For information relating to recent accounting standards and pronouncements, see Note 1 to our consolidated financial statements entitled “Summary of Significant Accounting Policies.” RESULTS OF OPERATIONS The following discussion reviews the results of operations and key drivers to change in the results of 2024 as compared to 2023.
As discussed in “Borrowings” above, we also currently have $77.3 million in trust preferred securities outstanding, all of which qualify as Tier I capital under regulatory standards and $28.0 million of unsecured subordinated debentures which qualify as Tier II capital for regulatory capital adequacy requirements.
As discussed in “Borrowings” above, we also currently have $77.3 million in trust preferred securities outstanding, all of which qualify as Tier I capital under regulatory standards and $18.0 million of unsecured subordinated debentures which qualify as Tier II capital for regulatory capital adequacy requirements.
In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms. 48 Table of Contents The following table summarizes our NPAs at the dates indicated.
In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms. 46 Table of Contents The following table summarizes our NPAs at the dates indicated.
As of December 31, 2023, approximately $1.1 billion of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval. Our regulatory capital ratios as of December 31, 2023, 2022 and 2021 are presented in the table below.
As of December 31, 2024, approximately $1.1 billion of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval. Our regulatory capital ratios as of December 31, 2024, 2023 and 2022 are presented in the table below.
We have evaluated any unrealized losses on individual securities at each year end and determined them to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns about the ability of the issuers to meet their obligations. 54 Table of Contents Deposits Deposits represent the primary funding source for our loans and investments.
We have evaluated any unrealized losses on individual securities at each year end and determined them to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns about the ability of the issuers to meet their obligations. Deposits Deposits represent the primary funding source for our loans and investments.
As a matter of policy, we generally place all loans that are past due 90 or more days on nonaccrual basis. There were no accruing loans that are past due 90 or more days at December 31, 2023 and December 31, 2022.
As a matter of policy, we generally place all loans that are past due 90 or more days on nonaccrual basis. There were no accruing loans that were past due 90 or more days at December 31, 2024 and December 31, 2023.
We had no carrying amount for these standby letters of credit. The nature of standby letters of credit is that of a stand-alone obligation made on behalf of our customers to suppliers of the customers to guarantee payments owed to the supplier by the customer.
We had no carrying amount for these standby letters of credit. The nature of standby letters of credit is that of a stand-alone obligation made on behalf of our customers to suppliers of the customers to guarantee payments owed to the suppliers by the customers.
We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations. 58 Table of Contents The Company and the Bank must comply with regulatory capital requirements established by the Federal Reserve and the Commissioner.
We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations. The Company and the Bank must comply with regulatory capital requirements established by the Federal Reserve and the Commissioner.
At each reporting date between annual goodwill impairment tests, we consider potential indicators of impairment. Generally, absent potential 38 Table of Contents impairment indicators, we perform an annual assessment of whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value.
At each reporting date between annual goodwill impairment tests, we consider potential indicators of impairment. Generally, absent potential impairment indicators, we perform an annual assessment of whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value.
These loans are underwritten and monitored to manage the associated risks. The Company has determined that there is no concentration of credit risk associated with its lending policies or practices. Most of our business activity is with customers located within the markets where we have banking operations.
These loans are underwritten and monitored to manage the associated risks. The Company has determined that there is no concentration of credit risk associated with its lending policies or practices. 45 Table of Contents Most of our business activity is with customers located within the markets where we have banking operations.
For a description of our results of operations for 2022 as compared to 2021, refer to the "Overview and 2022 Highlights," Results of Operations," and "Analysis of Financial Condition and Changes in Financial Condition" sections of Item 7 in our 2022 Form 10-K.
For a description of our results of operations for 2023 as compared to 2022, refer to the "Overview and 2023 Highlights," Results of Operations," and "Analysis of Financial Condition and Changes in Financial Condition" sections of Item 7 in our 2023 Form 10-K.
The methodology is based on a loss rate approach that starts with the probability of funding based on historical experience. Similar to the methodology discussed above related to the loans receivable portfolio, adjustments are made to the historical losses for current conditions and reasonable and supportable forecasts.
The methodology is based on a loss rate approach that starts with the probability of funding based on historical experience. Similar to the methodology discussed above 34 Table of Contents related to the loans receivable portfolio, adjustments are made to the historical losses for current conditions and reasonable and supportable forecasts.
This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense. 41 Table of Contents The following table presents additional detail regarding the estimated impact that changes in loan and deposit volumes and changes in the interest rates we earned/paid had on our net interest income in 2023 and 2022.
This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense. 39 Table of Contents The following table presents additional detail regarding the estimated impact that changes in loan and deposit volumes and changes in the interest rates we earned/paid had on our net interest income in 2024 and 2023.
Our financial position and results of operations are susceptible, among other factors, to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors, and the decline in the value of assets held by us or securing our loans.
Our financial position and results of operations are susceptible, among other factors, to the ability of our loan customers to meet their loan obligations to us, the availability of our workforce, the availability of our vendors, and the volatility in the value of assets held by us or securing our loans.
We routinely engage in activities designed to grow and retain deposits, including emphasizing relationship banking to new and existing customers where borrowers are encouraged and normally expected to maintain deposit accounts with us; pricing 55 Table of Contents deposits at rate levels that will attract and/or retain deposits; and continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.
We routinely engage in activities designed to grow and retain deposits, including emphasizing relationship banking to new and existing customers where borrowers are encouraged to maintain deposit accounts with us; pricing deposits at rate levels that will attract and/or retain deposits; and continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.
Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed.
Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair 35 Table of Contents value of the liabilities assumed.
The table below presents the composition, tax equivalent yields, and remaining maturities of our securities as of December 31, 2023.
The table below presents the composition, tax equivalent yields, and remaining maturities of our securities as of December 31, 2024.
(3) Includes tax-equivalent adjustments of $2.9 million, $2.8 million and $2.2 million in 2023, 2022, and 2021, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status.
(3) Includes tax-equivalent adjustments of $3.0 million, $2.7 million and $2.8 million in 2024, 2023, and 2022, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status.
We provide diversified financial services primarily though the Bank, our principal subsidiary, including commercial and consumer banking services, mortgage lending, SBA lending, accounts receivable financing, and investment advisory services. As of December 31, 2023, the Bank had a 118 branch network in North Carolina and South Carolina and 1,421 full-time equivalent employees.
We provide diversified financial services primarily though the Bank, our principal subsidiary, including commercial and consumer banking services, mortgage lending, SBA lending, accounts receivable financing, and investment advisory services. As of December 31, 2024, the Bank had a 113 branch network in North Carolina and South Carolina and 1,371 full-time equivalent employees.
See additional discussion under "Recent Developments and Acquisitions" in Item 1. 61 Table of Contents
See additional discussion under "Recent Developments and Acquisitions" in Item 1. 58 Table of Contents
We have grown organically as well as through strategic acquisitions as discussed previously in "Recent Developments and Acquisitions". 2023 Financial Highlights: • Return on average assets was 0.87% for the year ended December 31, 2023, as compared to 1.39% for the prior year.
We have grown organically as well as through strategic acquisitions as discussed previously in "Recent Developments and Acquisitions". 2024 Financial Highlights: • Return on average assets was 0.63% for the year ended December 31, 2024, as compared to 0.87% for the prior year.
The two basic components that typically have the largest impact on our shareholders’ equity are net income, which increases shareholders’ equity, and dividends declared, which decrease shareholders’ equity. Additionally, any stock issuances can significantly increase shareholders’ equity, including those associated with acquisitions such as in 2023, and any stock repurchases reduce shareholders’ equity.
The two basic components that typically have the largest impact on our shareholders’ equity are net income, which increases shareholders’ equity, and dividends declared, which decreases shareholders’ equity. Additionally, any stock issuances can significantly increase shareholders’ equity, including those associated 55 Table of Contents with acquisitions such as in 2023, and any stock repurchases reduce shareholders’ equity.
The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM as reported and on a tax-equivalent basis.
The following is a reconciliation of reported net interest income to tax- 36 Table of Contents equivalent net interest income and the resulting NIM as reported and on a tax-equivalent basis.
Certain of the outstanding commitments and contingent liabilities, such as commitments to extend credit, are not reflected in the financial statements. 57 Table of Contents Presented below is a summary of our contractual obligations and other commercial commitments outstanding as of December 31, 2023.
Certain of the outstanding commitments and contingent liabilities, such as commitments to extend credit, are not reflected in the financial statements. Presented below is a summary of our contractual obligations and other commercial commitments outstanding as of December 31, 2024.
The most significant variable in the economic forecasts is the national unemployment rate and changes in unemployment forecasts can have significant impact to the estimated ACL. Other economic variables include national GDP, the national commercial real estate pricing index and the national home price index.
The most significant variable in the economic forecasts is the national unemployment rate (which has remained relatively stable), and changes in unemployment forecasts can have significant impact to the estimated ACL. Other economic variables include national GDP, the national commercial real estate pricing index and the national home price index.
Other service charges and fees - bankcard interchange income,net represents interchange income from debit and credit card transactions, net of associated interchange expense and amounted to $9.3 million in 2023, a 37.9% decrease from the $15.0 million in 2022.
Other service charges and fees - bankcard interchange income, net represents interchange income from debit and credit card transactions, net of associated interchange expense and amounted to $9.3 million in 2024, a 0.1% decrease from the $9.3 million in 2023.
Allocation of the Allowance for Credit Losses As of December 31, ($ in thousands) 2023 % of Loan Category 2022 % of Loan Category 2021 % of Loan Category 2020 % of Loan Category 2019 % of Loan Category Commercial and industrial $ 21,227 2.34 % 17,718 2.76 % 16,249 2.50 % 11,316 1.45 % 4,553 0.90 % Construction, development & other land loans 13,940 1.40 % 15,128 1.62 % 16,519 1.99 % 5,355 0.94 % 1,976 0.37 % Commercial real estate - owner occupied 18,218 1.45 % 14,972 1.44 % 12,317 1.24 % 10,608 1.41 % 5,186 0.64 % Commercial real estate - non owner occupied 24,916 0.99 % 22,780 1.07 % 16,789 0.93 % 11,465 1.05 % 2,990 0.33 % Multi-family real estate 3,825 0.91 % 2,957 0.84 % 1,236 0.32 % 1,530 0.77 % 762 0.37 % Residential 1-4 family real estate 21,396 1.31 % 11,354 0.95 % 8,686 0.85 % 8,048 0.83 % 3,832 0.35 % Home equity loans/lines of credit 3,339 1.00 % 3,158 0.98 % 4,337 1.31 % 2,375 0.78 % 1,127 0.33 % Consumer loans 2,992 4.37 % 2,900 4.78 % 2,656 4.64 % 1,478 2.74 % 972 1.73 % Total allocated 109,853 90,967 78,789 52,175 21,398 Unallocated — n/a — n/a — n/a 213 n/a — n/a Total $ 109,853 1.35 % 90,967 1.36 % 78,789 1.30 % 52,388 1.11 % 21,398 0.48 % Note: "% of Loan Category" represents the ACL as a percent of the respective total loan categories presented previously in the Loan Portfolio Composition table. n/a - not applicable 51 Table of Contents For the years indicated, the following table summarized our net loss experience by loan category and key ratios demonstrating the asset quality trends over the most recent five years.
Allocation of the Allowance for Credit Losses As of December 31, ($ in thousands) 2024 % of Loan Category 2023 % of Loan Category 2022 % of Loan Category 2021 % of Loan Category 2020 % of Loan Category Commercial and industrial $ 19,474 2.12 % $ 21,227 2.34 % $ 17,718 2.76 % $ 16,249 2.50 % $ 11,316 1.45 % Construction, development & other land loans 9,314 1.44 % 13,940 1.40 % 15,128 1.62 % 16,519 1.99 % 5,355 0.94 % Commercial real estate - owner occupied 19,380 1.55 % 18,218 1.45 % 14,972 1.44 % 12,317 1.24 % 10,608 1.41 % Commercial real estate - non owner occupied 27,768 1.06 % 24,916 0.99 % 22,780 1.07 % 16,789 0.93 % 11,465 1.05 % Multi-family real estate 5,476 1.08 % 3,825 0.91 % 2,957 0.84 % 1,236 0.32 % 1,530 0.77 % Residential 1-4 family real estate 33,552 1.94 % 21,396 1.31 % 11,354 0.95 % 8,686 0.85 % 8,048 0.83 % Home equity loans/lines of credit 4,111 1.19 % 3,339 1.00 % 3,158 0.98 % 4,337 1.31 % 2,375 0.78 % Consumer loans 3,497 4.95 % 2,992 4.37 % 2,900 4.78 % 2,656 4.64 % 1,478 2.74 % Total allocated 122,572 109,853 90,967 78,789 52,175 Unallocated — n/a — n/a — n/a — n/a 213 n/a Total $ 122,572 1.51 % $ 109,853 1.35 % $ 90,967 1.36 % $ 78,789 1.30 % $ 52,388 1.11 % Note: "% of Loan Category" represents the ACL as a percent of the respective total loan categories presented previously in the Loan Portfolio Composition table. n/a - not applicable 49 Table of Contents For the years indicated, the following table summarized our net loss experience by loan category and key ratios demonstrating the asset quality trends over the most recent five years.
Generally, the level of loan discount accretion will decline each year due to the natural paydowns in acquired loan portfolios. Alternately, levels of accretion will increase as a result of acquisitions and related additions to loan discounts on acquired portfolios which are accreted to income as experienced in 2023 with the GrandSouth acquisition.
Generally, the level of loan discount accretion will decline each year after an acquisition due to the natural reduction in the outstanding balance of acquired loans. Alternately, levels of accretion will increase as a result of acquisitions and related additions to loan discounts on acquired portfolios which are accreted to income as experienced in 2023 with the GrandSouth acquisition.
Our total nonperforming loans to total loans was 0.54% at December 31, 2023, while our total NPA ratio was 0.37% at that date. Additional discussion of the credit quality classification status of our loans is contained in Note 4 to our consolidated financial statements.
Our total nonperforming loans to total loans was 0.52% at December 31, 2024, while our total NPA ratio was 0.39% at that date. Additional discussion of the credit quality classification status of our loans is contained in Note 4 to our consolidated financial statements.
Performing special mention loans, which are still accruing interest, totaled $44.1 million and $39.0 million as of December 31, 2023 and 2022, respectively. In addition, loans that are in the risk category of "classified" which are still accruing interest totaled $22.0 million at December 31, 2023 and $20.0 million at December 31, 2022.
Performing special mention loans, which are still accruing interest, totaled $37.1 million and $44.1 million as of December 31, 2024 and 2023, respectively. In addition, loans that are in the risk category of "classified" which are still accruing interest totaled $34.0 million at December 31, 2024 and $22.0 million at December 31, 2023.
The Company issued $46.4 million of these securities with the balance assumed from several recent acquisitions, including GrandSouth as noted above. The $28.0 million of unsecured subordinated debentures are borrowings issued by GrandSouth which we acquired and which qualify as Tier II capital for regulatory capital adequacy requirements.
The Company issued $46.4 million of these securities with the balance assumed from acquisitions. The $18.0 million of unsecured subordinated debentures are borrowings issued by GrandSouth which we acquired and which qualify as Tier II capital for regulatory capital adequacy requirements.
These improving economic projections translated to lower forecasted losses in our loan portfolio and, thus a lower estimated ACL, exclusive of portfolio growth. Also under the CECL method, in 2023 we recorded a reduction in the provision for unfunded commitments of $1.9 million compared to $0.2 million for 2022.
These improving economic projections translated to lower forecasted losses in our loan portfolio and, thus a lower estimated ACL, exclusive of portfolio growth and the reserves related to Hurricane Helene. Also under the CECL method, in 2024 we recorded a reduction in the provision for unfunded commitments of $2.3 million compared to a reduction of $1.9 million for 2023.
Early repayment of loans or renewals at maturity are not considered in this table. Approximately 11% of our accruing loans outstanding at December 31, 2023 mature within one year and 53% of total loans mature within five years.
Early repayment of loans or renewals at maturity are not considered in this table. Approximately 12% of our accruing loans outstanding at December 31, 2024 mature within one year and 59% of total loans mature within five years.
In the normal course of business, we are exposed to certain risk arising from both its business operations and economic conditions.
In the normal course of business, we are exposed to certain risks arising from both our business operations and economic conditions.
Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization, in the amounts of $0.5 million , $3.1 million, and $9.7 million for 2023, 2022, and 2021, respectively. (2) Includes accretion of discount on acquired and SBA loans of $13.3 million, $8.5 million, and $8.8 million in 2023, 2022, and 2021, respectively.
Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan (cost)/fee amortization, in the amounts of $(1.1) million , $0.5 million, and $3.1 million for 2024, 2023, and 2022, respectively. (2) Includes accretion of discount on acquired loans of $8.9 million, $11.5 million, and $5.6 million in 2024, 2023, and 2022, respectively.
Income Taxes We recorded income tax expense of $27.8 million in 2023, $38.3 million in 2022, and $24.7 million in 2021. Our effective tax rates were at 21.1% for 2023, 20.7% for 2022, and 20.5% for 2021.
Income Taxes We recorded income tax expense of $21.9 million in 2024, $27.8 million in 2023, and $38.3 million in 2022. Our effective tax rates were at 22.3% for 2024, 21.1% for 2023, and 20.7% for 2022.
Liquidity is evaluated as both on-balance sheet (primarily cash and cash-equivalents, unpledged securities, and other marketable assets) and off-balance sheet (readily available lines of credit or other funding sources). Our overall on-balance sheet liquidity ratio was 14.6% at December 31, 2023. Our total liquidity ratio, including the $1.9 billion in available lines of credit, was 28.8% as of that date.
Liquidity is evaluated as both on-balance sheet (primarily cash and cash-equivalents, unpledged securities, and other marketable assets) and off-balance sheet (readily available lines of credit or other funding sources). Our overall on-balance sheet liquidity ratio was 17.6% at December 31, 2024. Our total liquidity ratio, including the $2.4 billion in available lines of credit, was 34.9% as of that date.
While positive indicators are present, there continues to be some uncertainty in economic conditions, and as such, we could be subject to ongoing risks which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.
A mix of positive and negative economic indicators remained present at the end of 2024 and there continues to be some uncertainty in economic conditions, and as such, we could be subject to ongoing risks, which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.
Loan Ratios, Loss and Recovery Experience As of December 31, ($ in thousands) 2023 2022 2021 2020 2019 Loans outstanding at end of year $ 8,150,102 6,665,145 6,081,715 4,731,315 4,453,466 Average amount of loans outstanding 7,902,628 6,293,280 5,018,391 4,702,743 4,346,331 Allowance for credit losses, at end of year 109,853 90,967 78,789 52,388 21,398 Net loan (charge-offs) recoveries Commercial and industrial $ (6,965) (1,763) (1,978) (4,863) (1,493) Construction, development & other land loans 250 480 703 1,501 722 Commercial real estate - owner occupied 321 477 (212) (335) (220) Commercial real estate - non owner occupied 502 432 (1,562) (24) (947) Multi-family real estate 13 11 12 12 186 Residential 1-4 family real estate 373 17 488 276 48 Home equity loans/lines of credit (211) 557 178 (37) 322 Consumer loans (757) (633) (309) (579) (522) Total net charge-offs $ (6,474) (422) (2,680) (4,049) (1,904) Average loans: Commercial and industrial $ 865,043 619,480 700,557 707,976 482,654 Construction, development & other land loans 1,053,422 857,880 619,928 615,717 503,183 Commercial real estate - owner occupied 1,224,284 1,012,275 812,764 776,166 814,783 Commercial real estate - non owner occupied 2,464,389 1,968,944 1,322,685 1,012,182 860,783 Multi-family real estate 402,814 357,491 256,396 193,415 197,100 Residential 1-4 family real estate 1,482,941 1,091,788 951,573 1,028,334 1,074,938 Home equity loans/lines of credit 341,778 326,592 300,291 316,593 346,331 Consumer loans 67,957 58,830 54,197 52,360 66,559 Total average loans $ 7,902,628 6,293,280 5,018,391 4,702,743 4,346,331 Ratios: Allowance for credit losses as a percent of loans at end of year 1.35 % 1.36 % 1.30 % 1.11 % 0.48 % Allowance for credit losses as a multiple of net charge-offs 16.97 215.56 29.40 12.94 11.24 Provision for loan losses as a percent of net charge-offs 305.07 % 2,985.78 % 358.62% 865.37% 118.86% Recoveries of loans previously charged-off as a percent of loans charged-off 36.37 % 90.55 % 64.75 % 52.38 % 69.79 % Total net charge-offs as a percent of average loans (0.08 %) (0.01 %) (0.05 %) (0.09 %) (0.04 %) Net (charge-offs) recoveries by loan category as a percent of average loans: Commercial and industrial (0.81 %) (0.28 %) (0.28 %) (0.69 %) (0.31 %) Construction, development & other land loans 0.02 % 0.06 % 0.11 % 0.24 % 0.14 % Commercial real estate - owner occupied 0.03 % 0.05 % (0.03 %) (0.04 %) (0.03 %) Commercial real estate - non owner occupied 0.02 % 0.02 % (0.12 %) — % (0.11 %) Multi-family real estate — % — % — % 0.01 % 0.09 % Residential 1-4 family real estate 0.03 % — % 0.05 % 0.03 % — % Home equity loans/lines of credit (0.06 %) 0.17 % 0.06 % (0.01 %) 0.09 % Consumer loans (1.11 %) (1.08 %) (0.57 %) (1.11 %) (0.78 %) 52 Table of Contents Securities Our securities portfolio and the breakout of AFS and HTM securities is presented in the following table.
Loan Ratios, Loss and Recovery Experience As of December 31, ($ in thousands) 2024 2023 2022 2021 2020 Loans outstanding at end of year $ 8,094,676 $ 8,150,102 $ 6,665,145 $ 6,081,715 $ 4,731,315 Average amount of loans outstanding 8,046,681 7,902,628 6,293,280 5,018,391 4,702,743 Allowance for credit losses, at end of year 122,572 109,853 90,967 78,789 52,388 Net loan (charge-offs) recoveries Commercial and industrial $ (4,915) $ (6,965) $ (1,763) $ (1,978) $ (4,863) Construction, development & other land loans 150 250 480 703 1,501 Commercial real estate - owner occupied (187) 321 477 (212) (335) Commercial real estate - non owner occupied (355) 502 432 (1,562) (24) Multi-family real estate — 13 11 12 12 Residential 1-4 family real estate 292 373 17 488 276 Home equity loans/lines of credit 270 (211) 557 178 (37) Consumer loans (1,287) (757) (633) (309) (579) Total net charge-offs $ (6,032) $ (6,474) $ (422) $ (2,680) $ (4,049) Average loans Commercial and industrial $ 877,989 $ 865,043 $ 619,480 $ 700,557 $ 707,976 Construction, development & other land loans 810,564 1,053,422 857,880 619,928 615,717 Commercial real estate - owner occupied 1,239,411 1,224,284 1,012,275 812,764 776,166 Commercial real estate - non owner occupied 2,552,146 2,464,389 1,968,944 1,322,685 1,012,182 Multi-family real estate 466,588 402,814 357,491 256,396 193,415 Residential 1-4 family real estate 1,696,449 1,482,941 1,091,788 951,573 1,028,334 Home equity loans/lines of credit 331,995 341,778 326,592 300,291 316,593 Consumer loans 71,539 67,957 58,830 54,197 52,360 Total average loans $ 8,046,681 $ 7,902,628 $ 6,293,280 $ 5,018,391 $ 4,702,743 Ratios Allowance for credit losses as a percent of loans at end of year 1.51 % 1.35 % 1.36 % 1.30 % 1.11 % Allowance for credit losses as a multiple of net charge-offs 20.32 16.97 215.56 29.40 12.94 Provision for loan losses as a percent of net charge-offs 310.86 % 305.07 % 2,985.78 % 358.62% 865.37% Recoveries of loans previously charged-off as a percent of loans charged-off 37.08 % 36.37 % 90.55 % 64.75 % 52.38 % Total net charge-offs as a percent of average loans (0.07 %) (0.08 %) (0.01 %) (0.05 %) (0.09 %) Net (charge-offs) recoveries by loan category as a percent of average loans: Commercial and industrial (0.56 %) (0.81 %) (0.28 %) (0.28 %) (0.69 %) Construction, development & other land loans 0.02 % 0.02 % 0.06 % 0.11 % 0.24 % Commercial real estate - owner occupied (0.02 %) 0.03 % 0.05 % (0.03 %) (0.04 %) Commercial real estate - non owner occupied (0.01 %) 0.02 % 0.02 % (0.12 %) — % Multi-family real estate — % — % — % — % 0.01 % Residential 1-4 family real estate 0.02 % 0.03 % — % 0.05 % 0.03 % Home equity loans/lines of credit 0.08 % (0.06 %) 0.17 % 0.06 % (0.01 %) Consumer loans (1.80 %) (1.11 %) (1.08 %) (0.57 %) (1.11 %) 50 Table of Contents Securities Our securities portfolio and the breakout of AFS and HTM securities is presented in the following table.
Nonperforming Assets As of December 31, ($ in thousands) 2023 2022 2021 2020 2019 Nonperforming assets Nonaccrual loans $ 32,208 28,514 34,696 35,076 24,866 Modifications to borrowers in financial distress 11,719 — — — — TDRs - accruing — 9,121 13,866 9,497 9,053 Accruing loans >90 days past due — — 1,004 — — Total nonperforming loans 43,927 37,635 49,566 44,573 33,919 Foreclosed real estate 862 658 3,071 2,424 3,873 Total nonperforming assets $ 44,789 38,293 52,637 46,997 37,792 Allowance for credit losses $ 109,853 90,967 78,789 52,388 21,398 Total Loans 8,150,102 6,665,145 6,081,715 4,731,315 4,453,466 Asset Quality Ratios Nonaccrual loans to total loans 0.40 % 0.43 % 0.57 % 0.74 % 0.56 % Nonperforming loans to total loans 0.54 % 0.56 % 0.82 % 0.94 % 0.76 % Nonperforming assets to total loans and foreclosed real estate 0.55 % 0.57 % 0.87 % 0.99 % 0.85 % Nonperforming assets to total assets 0.37 % 0.36 % 0.50 % 0.64 % 0.62 % Allowance for credit losses to total loans 1.35 % 1.36 % 1.30 % 1.11 % 0.48 % Allowance for credit losses to nonaccrual loans 341.07 % 319.03 % 227.08 % 149.36 % 86.05 % Allowance for credit losses to nonperforming loans 250.08 % 241.71 % 158.96 % 117.53 % 63.09 % Our asset quality continues to be strong as demonstrated by stable or improving trends in all ratios as presented in the table above.
Nonperforming Assets As of December 31, ($ in thousands) 2024 2023 2022 2021 2020 Nonperforming assets Nonaccrual loans $ 31,779 $ 32,208 $ 28,514 $ 34,696 $ 35,076 Modifications to borrowers in financial distress 10,173 11,719 — — — TDRs - accruing — — 9,121 13,866 9,497 Accruing loans >90 days past due — — — 1,004 — Total nonperforming loans 41,952 43,927 37,635 49,566 44,573 Foreclosed real estate 4,965 862 658 3,071 2,424 Total nonperforming assets $ 46,917 $ 44,789 $ 38,293 $ 52,637 $ 46,997 Allowance for credit losses $ 122,572 $ 109,853 $ 90,967 $ 78,789 $ 52,388 Total Loans 8,094,676 8,150,102 6,665,145 6,081,715 4,731,315 Asset Quality Ratios Nonaccrual loans to total loans 0.39 % 0.40 % 0.43 % 0.57 % 0.74 % Nonperforming loans to total loans 0.52 % 0.54 % 0.56 % 0.82 % 0.94 % Nonperforming assets to total loans and foreclosed real estate 0.58 % 0.55 % 0.57 % 0.87 % 0.99 % Nonperforming assets to total assets 0.39 % 0.37 % 0.36 % 0.50 % 0.64 % Allowance for credit losses to total loans 1.51 % 1.35 % 1.36 % 1.30 % 1.11 % Allowance for credit losses to nonaccrual loans 385.70 % 341.07 % 319.03 % 227.08 % 149.36 % Allowance for credit losses to nonperforming loans 292.17 % 250.08 % 241.71 % 158.96 % 117.53 % Our asset quality continues to be strong as demonstrated by stable or improving trends in all ratios as presented in the table above.
These loans have a great risk of further deterioration and potential loss to the Bank. 49 Table of Contents Total foreclosed real estate amounted to $0.9 million at December 31, 2023, compared to $0.7 million in 2022. Six property were added to foreclosed real estate during 2023 and we completed the sale of six properties during the year.
These loans have a risk of further deterioration and potential loss to the Bank. 47 Table of Contents Total foreclosed real estate amounted to $5.0 million at December 31, 2024, compared to $0.9 million in 2023. Nine properties were added to foreclosed real estate during 2024 and we completed the sale of five properties during the year.
Loan Portfolio Composition As of December 31, 2023 2022 2021 2020 2019 ($ in thousands) Amount % of Total Loans Amount % of Total Loans Amount % of Total Loans Amount % of Total Loans Amount % of Total Loans Commercial and industrial $ 905,862 11 % 641,941 9 % 648,997 11 % 782,549 17 % 504,271 11 % Construction, development & other land loans 992,980 12 % 934,176 14 % 828,549 13 % 570,672 12 % 530,866 12 % Commercial real estate - owner occupied 1,259,022 16 % 1,036,270 16 % 991,775 16 % 754,570 16 % 816,325 18 % Commercial real estate - non owner occupied 2,528,060 31 % 2,123,811 32 % 1,813,849 31 % 1,096,781 23 % 893,776 20 % Multi-family real estate 421,376 5 % 350,180 5 % 389,113 6 % 197,852 4 % 207,179 5 % Residential 1-4 family real estate 1,639,469 20 % 1,195,785 18 % 1,021,966 17 % 972,378 21 % 1,105,014 25 % Home equity loans/lines of credit 335,068 4 % 323,726 5 % 331,932 5 % 306,256 6 % 337,922 8 % Consumer loans 68,443 1 % 60,659 1 % 57,238 1 % 53,955 1 % 56,172 1 % Loans, gross 8,150,280 100 % 6,666,548 100 % 6,083,419 100 % 4,735,013 100 % 4,451,525 100 % Unamortized net deferred loan (fees) costs (178) (1,403) (1,704) (3,698) 1,941 Total loans $ 8,150,102 6,665,145 6,081,715 4,731,315 4,453,466 The majority of our loan portfolio over the years has been real estate mortgage loans, including commercial and residential mortgages.
Loan Portfolio Composition As of December 31, 2024 2023 2022 2021 2020 ($ in thousands) Amount % of Total Loans Amount % of Total Loans Amount % of Total Loans Amount % of Total Loans Amount % of Total Loans Commercial and industrial $ 919,690 11 % $ 905,862 11 % $ 641,941 9 % $ 648,997 11 % $ 782,549 17 % Construction, development & other land loans 647,167 8 % 992,980 12 % 934,176 14 % 828,549 13 % 570,672 12 % Commercial real estate - owner occupied 1,248,812 16 % 1,259,022 16 % 1,036,270 16 % 991,775 16 % 754,570 16 % Commercial real estate - non owner occupied 2,625,554 33 % 2,528,060 31 % 2,123,811 32 % 1,813,849 31 % 1,096,781 23 % Multi-family real estate 506,407 6 % 421,376 5 % 350,180 5 % 389,113 6 % 197,852 4 % Residential 1-4 family real estate 1,729,322 21 % 1,639,469 20 % 1,195,785 18 % 1,021,966 17 % 972,378 21 % Home equity loans/lines of credit 345,883 4 % 335,068 4 % 323,726 5 % 331,932 5 % 306,256 6 % Consumer loans 70,653 1 % 68,443 1 % 60,659 1 % 57,238 1 % 53,955 1 % Loans, gross 8,093,488 100 % 8,150,280 100 % 6,666,548 100 % 6,083,419 100 % 4,735,013 100 % Unamortized net deferred loan (fees) costs 1,188 (178) (1,403) (1,704) (3,698) Total loans $ 8,094,676 $ 8,150,102 $ 6,665,145 $ 6,081,715 $ 4,731,315 The majority of our loan portfolio over the years has been real estate mortgage loans, including commercial and residential mortgages.
Our borrowings outstanding as of the dates presented were as follows: ($ in thousands) December 31, 2023 December 31, 2022 FHLB advances $ 280,851 221,842 FRB borrowings 249,000 — Trust preferred capital issuances 77,324 69,076 Subordinated debentures 28,000 — 635,175 290,918 Unamortized discounts on acquired borrowings (5,017) (3,411) $ 630,158 287,507 As noted in the table above, at December 31, 2023, we had $77.3 million of borrowings structured as trust preferred capital securities which qualify as Tier I capital for regulatory capital adequacy requirements.
Our borrowings outstanding as of the dates presented were as follows: ($ in thousands) December 31, 2024 December 31, 2023 FHLB advances $ 802 $ 280,851 FRB borrowings — 249,000 Trust preferred capital issuances 77,324 77,324 Subordinated debentures 18,000 28,000 96,126 635,175 Unamortized discounts on acquired borrowings (4,250) (5,017) $ 91,876 $ 630,158 As noted in the table above, at December 31, 2024, we had $77.3 million of borrowings structured as trust preferred capital securities which qualify as Tier I capital for regulatory capital adequacy requirements.
Loans totaled $8.2 billion at December 31, 2023. • Credit quality continues to be strong with the NPA to total assets ratio at 0.37% as of December 31, 2023, as compared to 0.36% at December 31, 2022.
Loans totaled $8.1 billion at December 31, 2024. • Credit quality continued to be strong with the NPA to total assets ratio at 0.39% as of December 31, 2024, as compared to 0.37% at December 31, 2023.
Additional discussion of the CECL method and our asset quality and credit metrics, which impact our provision for credit losses, is provided in the "Nonperforming Assets" and "Allowance for Credit Losses and Loan Loss Experience" sections following. Noninterest Income Our noninterest income amounted to $57.5 million in 2023, $68.0 million in 2022, and $73.6 million in 2021.
Additional discussion of the CECL method and our asset quality and credit metrics, which impact our provision for credit losses, is provided in the "Nonperforming Assets" and "Allowance for Credit Losses and Loan Loss Experience" sections following. Noninterest Income Our noninterest income amounted to $17.9 million in 2024, $57.3 million in 2023, and $67.8 million in 2022.
Nonperforming Assets NPAs include nonaccrual loans, modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, foreclosed real estate and, prior to the adoption of ASU 2022-02, accruing TDRs.
Business section, we do not have concentrations geographically or by CRE category. Nonperforming Assets NPAs include nonaccrual loans, modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, foreclosed real estate and, prior to the adoption of ASU 2022-02, accruing TDRs.
Such a shift in mix is beneficial for us, as non-time deposit accounts generally carry lower interest rates compared to time deposits and allows us to reprice these deposit categories at any time. Approximately 92% of our time deposits mature within one year.
Such a shift in mix is beneficial for us, as non-time deposit accounts generally carry lower interest rates compared to time deposits and we are able to reprice these deposit categories as market rates move over time. Approximately 97% of our time deposits mature within one year.
Four of the 2023 additions were within the population that sold in 2023. Allowance for Credit Losses and Loan Loss Experience The total allowance for credit losses amounted to $109.9 million at December 31, 2023 compared to $91.0 million at December 31, 2022.
Two of the 2024 additions were within the population that sold in 2024. Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience The total ACL amounted to $122.6 million at December 31, 2024 compared to $109.9 million at December 31, 2023.
Risk-Based and Leverage Capital Ratios As of December 31, ($ in thousands) 2023 2022 2021 Risk-Based and Leverage Capital Common Equity Tier I capital: Shareholders’ equity $ 1,372,380 1,031,596 1,230,575 Intangible assets, net of deferred tax liability (493,383) (363,202) (366,609) Accumulated other comprehensive income adjustments 308,030 341,975 24,970 Total Common Equity Tier I capital 1,187,027 1,010,369 888,936 Add: Trust preferred securities eligible for Tier I capital treatment 70,807 63,589 63,336 Total Tier I leverage capital 1,257,834 1,073,958 952,272 Tier II capital: Add: Allowable allowance for credit losses and unfunded commitments 112,491 97,126 88,692 Add: Subordinated debentures eligible for Tier II capital treatment 27,177 — — Tier II capital additions 139,668 97,126 88,692 Total capital $ 1,397,502 1,171,084 1,040,964 Total risk weighted assets $ 8,991,087 7,762,894 7,094,787 Adjusted fourth quarter average tangible assets $ 11,532,812 10,215,571 10,144,760 Risk-based and Leverage capital ratios: Common equity Tier I capital to Tier I risk adjusted assets 13.20 % 13.02 % 12.53 % Tier I capital to Tier I risk adjusted assets 13.99 % 13.83 % 13.42 % Total risk-based capital to Tier II risk-adjusted assets 15.54 % 15.09 % 14.67 % Tier I leverage capital to adjusted fourth quarter average assets 10.91 % 10.51 % 9.39 % Our goal is to maintain our capital ratios at levels at least 200 basis points higher than the regulatory “well capitalized” thresholds set for banks.
Risk-Based and Leverage Capital Ratios As of December 31, ($ in thousands) 2024 2023 2022 Risk-Based and Leverage Capital Common Equity Tier I capital: Shareholders’ equity $ 1,445,611 $ 1,372,380 $ 1,031,596 Intangible assets, net of deferred tax liability (487,660) (493,383) (363,202) Accumulated other comprehensive income adjustments 282,029 308,030 341,975 Total Common Equity Tier I capital 1,239,980 1,187,027 1,010,369 Add: Trust preferred securities eligible for Tier I capital treatment 71,148 70,807 63,589 Total Tier I leverage capital 1,311,128 1,257,834 1,073,958 Tier II capital: Add: Allowable allowance for credit losses and unfunded commitments 108,320 112,491 97,126 Add: Subordinated debentures eligible for Tier II capital treatment 17,602 27,177 — Tier II capital additions 125,922 139,668 97,126 Total capital $ 1,437,050 $ 1,397,502 $ 1,171,084 Total risk weighted assets $ 8,642,315 $ 8,991,087 $ 7,762,894 Adjusted fourth quarter average tangible assets $ 11,756,111 $ 11,532,812 $ 10,215,571 Risk-based and Leverage capital ratios: Common equity Tier I capital to Tier I risk adjusted assets 14.35 % 13.20 % 13.02 % Tier I capital to Tier I risk adjusted assets 15.17 % 13.99 % 13.83 % Total risk-based capital to Tier II risk-adjusted assets 16.63 % 15.54 % 15.09 % Tier I leverage capital to adjusted fourth quarter average assets 11.15 % 10.91 % 10.51 % Our goal is to maintain our capital ratios at levels at least 200 basis points higher than the regulatory “well capitalized” thresholds set for banks.
As of December 31, 2023, SBA loans accounted for approximately $18.2 million of our nonaccrual loans, or 56.6%, of the total SBA portfolio, and carried guarantees from the SBA totaling $9.3 million. This is compared to $14.6 million, or 9.5%, of the SBA portfolio at December 31, 2022.
As of December 31, 2024, SBA loans accounted for approximately $15.5 million of our nonaccrual loans, or 11.4%, of the total SBA portfolio, and carried guarantees from the SBA totaling $7.4 million. This is compared to $18.2 million, or 12.7%, of the SBA portfolio at December 31, 2023.
All of this line was available at year end. Refer to Note 9 to the consolidated financial statements for additional discussion of our borrowings.
All of this line was available at both December 31, 2024 and December 31, 2023. Refer to Note 9 to the consolidated financial statements for additional discussion of our borrowings.
Deposit Composition As of December 31, 2023 2022 2021 2020 2019 ($ in thousands) Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing checking accounts $ 3,379,876 34 % 3,566,003 39 % 3,348,622 37 % 2,210,012 35 % 1,515,977 31 % Interest-bearing checking accounts 1,411,142 14 % 1,514,166 16 % 1,593,231 17 % 1,172,022 19 % 912,784 18 % Money market accounts 3,653,506 36 % 2,416,146 26 % 2,562,283 28 % 1,581,364 25 % 1,173,107 24 % Savings accounts 608,380 6 % 728,641 8 % 708,054 8 % 519,266 8 % 424,415 9 % Other time deposits 610,887 6 % 464,343 5 % 547,669 6 % 415,269 7 % 462,898 9 % Time deposits >$250,000 355,209 4 % 276,319 3 % 357,355 4 % 355,441 6 % 356,033 7 % Total customer deposits 10,019,000 100 % 8,965,618 97 % 9,117,214 100 % 6,253,374 100 % 4,845,214 98 % Brokered Deposits 12,599 — % 261,911 3 % 7,415 — % 20,222 — % 86,141 2 % Total deposits $ 10,031,599 100 % 9,227,529 100 % 9,124,629 100 % 6,273,596 100 % 4,931,355 100 % While our customer deposits have remained fairly stable, there continues to be competition for deposits and the market rate increases experienced starting in 2022 have resulted in changes in customer behavior driving the shift to money market accounts during 2023.
Deposit Composition As of December 31, 2024 2023 2022 2021 2020 ($ in thousands) Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing checking accounts $ 3,367,624 32 % $ 3,379,876 34 % $ 3,566,003 39 % $ 3,348,622 37 % $ 2,210,012 35 % Interest-bearing checking accounts 1,398,395 13 % 1,411,142 14 % 1,514,166 16 % 1,593,231 17 % 1,172,022 19 % Money market accounts 4,285,405 41 % 3,653,506 36 % 2,416,146 26 % 2,562,283 28 % 1,581,364 25 % Savings accounts 542,133 5 % 608,380 6 % 728,641 8 % 708,054 8 % 519,266 8 % Other time deposits 566,514 5 % 610,887 6 % 464,343 5 % 547,669 6 % 415,269 7 % Time deposits >$250,000 360,854 4 % 355,209 4 % 276,319 3 % 357,355 4 % 355,441 6 % Total customer deposits 10,520,925 100 % 10,019,000 100 % 8,965,618 97 % 9,117,214 100 % 6,253,374 100 % Brokered Deposits 9,600 — % 12,599 — % 261,911 3 % 7,415 — % 20,222 — % Total deposits $ 10,530,525 100 % $ 10,031,599 100 % $ 9,227,529 100 % $ 9,124,629 100 % $ 6,273,596 100 % While our customer deposits have remained fairly stable, there continues to be competition for deposits by both in-market and out-of-market competitors.
See Note 1 to our consolidated financial statements for a discussion of recent rule proposals and changes. 60 Table of Contents Selected Financial Information Year Ended December 31, ($ in thousands, except per share data) 2023 2022 2021 2020 2019 Income Statement Data Interest income $ 488,759 340,957 255,918 237,684 250,107 Interest expense 142,101 16,103 9,523 19,562 33,903 Net interest income 346,658 324,854 246,395 218,122 216,204 Provision for (reversal of) loan losses 19,750 12,600 9,611 35,039 2,263 (Reversal of) provision for unfunded commitments (1,937) (200) 5,420 — — Net interest income after provision 328,845 312,454 231,364 183,083 213,941 Noninterest income 57,490 67,985 73,611 81,346 59,529 Noninterest expense 254,379 195,220 184,656 161,298 157,194 Income before income taxes 131,956 185,219 120,319 103,131 116,276 Income tax expense 27,825 38,283 24,675 21,654 24,230 Net income 104,131 146,936 95,644 81,477 92,046 Per Common Share Data Earnings per common share – basic $ 2.54 4.12 3.19 2.81 3.10 Earnings per common share – diluted 2.53 4.12 3.19 2.81 3.10 Cash dividends declared 0.88 0.88 0.80 0.72 0.54 Market Price High 43.24 49.00 50.92 40.00 41.34 Low 26.48 32.90 32.47 17.32 31.22 Close 37.01 42.84 45.72 33.83 39.91 Stated book value – common 33.38 28.89 34.54 31.26 28.80 Common shares outstanding at year end 41,109,987 35,704,154 35,629,177 28,579,335 29,601,264 Selected Balance Sheet Data (at year end) Total assets $ 12,114,942 10,625,049 10,508,901 7,289,751 6,143,639 Loans 8,150,102 6,665,145 6,081,715 4,731,315 4,453,466 Allowance for credit losses 109,853 90,967 78,789 52,388 21,398 Intangible assets 511,608 376,938 382,090 254,638 251,585 Deposits 10,031,599 9,227,529 9,124,629 6,273,596 4,931,355 Borrowings 630,158 287,507 67,386 61,829 300,671 Total shareholders’ equity 1,372,380 1,031,596 1,230,575 893,421 852,401 Selected Average Balances Total assets 12,033,033 10,556,230 8,495,645 6,765,998 6,027,047 Loans 7,902,628 6,293,280 5,018,391 4,702,743 4,346,331 Earning assets 11,433,492 9,989,185 7,871,319 6,160,100 5,448,400 Deposits 10,176,966 9,283,505 7,401,910 5,644,290 4,824,216 Interest-bearing liabilities 7,037,105 5,758,001 4,736,343 3,897,912 3,720,536 Total shareholders’ equity 1,293,085 1,096,913 969,775 874,532 812,823 Ratios Return on average assets 0.87 % 1.39 % 1.13 % 1.20 % 1.53 % Return on average common equity 8.05 % 13.40 % 9.86 % 9.32 % 11.32 % Total risk-based capital ratio 15.54 % 15.09 % 14.67 % 15.37 % 14.89 % Net interest margin (taxable-equivalent basis) 3.06 % 3.28 % 3.16 % 3.56 % 4.00 % Loans to deposits at year end 81.24 % 72.23 % 66.65 % 75.42 % 90.31 % Allowance for loan losses to total loans 1.35 % 1.36 % 1.30 % 1.11 % 0.48 % Nonperforming assets to total assets at year end 0.36 % 0.36 % 0.50 % 0.64 % 0.62 % Net (charge-offs) recoveries to average total loans (0.08 %) (0.01 %) (0.05 %) (0.09 %) (0.04 %) Note - During both 2023 and 2021, the Company completed significant whole-bank acquisitions impacting the comparisons for each of those years.
See Note 1 to our consolidated financial statements for a discussion of recent rule proposals and changes. 57 Table of Contents Selected Financial Information Year Ended December 31, ($ in thousands, except per share data) 2024 2023 2022 2021 2020 Income Statement Data Interest income $ 519,240 $ 488,944 $ 341,118 $ 255,918 $ 237,684 Interest expense 186,967 142,101 16,103 9,523 19,562 Net interest income 332,273 346,843 325,015 246,395 218,122 Provision for credit losses 16,448 17,813 12,400 15,031 35,039 Net interest income after provision 315,825 329,030 312,615 231,364 183,083 Noninterest income 17,899 57,305 67,824 73,611 81,346 Noninterest expense 235,607 254,379 195,220 184,656 161,298 Income before income taxes 98,117 131,956 185,219 120,319 103,131 Income tax expense 21,902 27,825 38,283 24,675 21,654 Net income 76,215 104,131 146,936 95,644 81,477 Per Common Share Data Earnings per common share – basic $ 1.85 $ 2.54 $ 4.12 $ 3.19 $ 2.81 Earnings per common share – diluted 1.84 2.53 4.12 3.19 2.81 Cash dividends declared 0.88 0.88 0.88 0.80 0.72 Market Price High 49.20 43.24 49.00 50.92 40.00 Low 29.79 26.48 32.90 32.47 17.32 Close 43.97 37.01 42.84 45.72 33.83 Stated book value – common 34.96 33.38 28.89 34.54 31.26 Common shares outstanding at year end 41,347,418 41,109,987 35,704,154 35,629,177 28,579,335 Selected Balance Sheet Data (at year end) Total assets $ 12,147,694 $ 12,114,942 $ 10,625,049 $ 10,508,901 $ 7,289,751 Loans 8,094,676 8,150,102 6,665,145 6,081,715 4,731,315 Allowance for credit losses (122,572) (109,853) 90,967 78,789 52,388 Intangible assets 501,654 508,257 372,933 376,618 248,850 Deposits 10,530,525 10,031,599 9,227,529 9,124,629 6,273,596 Borrowings 91,876 630,158 287,507 67,386 61,829 Total shareholders’ equity 1,445,611 1,372,380 1,031,596 1,230,575 893,421 Selected Average Balances Total assets 12,134,495 12,033,033 10,556,772 8,495,645 6,765,998 Loans 8,046,681 7,902,628 6,293,319 5,018,391 4,702,743 Earning assets 11,508,581 11,433,492 9,989,242 7,871,319 6,160,100 Deposits 10,408,082 10,176,966 9,283,527 7,401,910 5,644,290 Interest-bearing liabilities 7,274,014 7,037,105 5,758,001 4,736,343 3,897,912 Total shareholders’ equity 1,416,461 1,293,085 1,097,385 969,775 874,532 Ratios Return on average assets 0.63 % 0.87 % 1.39 % 1.13 % 1.20 % Return on average common equity 5.38 % 8.05 % 13.40 % 9.86 % 9.32 % Total risk-based capital ratio 16.63 % 15.54 % 15.09 % 14.67 % 15.37 % Net interest margin (taxable-equivalent basis) 2.91 % 3.06 % 3.28 % 3.16 % 3.56 % Loans to deposits at year end 76.87 % 81.24 % 72.23 % 66.65 % 75.42 % Allowance for loan losses to total loans 1.51 % 1.35 % 1.36 % 1.30 % 1.11 % Nonperforming assets to total assets at year end 0.39 % 0.37 % 0.36 % 0.50 % 0.64 % Net (charge-offs) recoveries to average total loans (0.07 %) (0.08 %) (0.01 %) (0.05 %) (0.09 %) Note - During both 2023 and 2021, the Company completed significant acquisitions impacting the comparisons for each of those years.
Net charge offs as a percentage of average loans were 0.08% for 2023, as compared to 0.01% for the prior year. • Capital remains strong with a total CET1 ratio of 13.20%, up from 13.02% for the prior year, and total risk-based capital ratio of 15.54% as of December 31, 2023, as compared to 15.09% for the prior year. • We earned net income of $104.1 million, or $2.53 diluted EPS, during 2023 compared to net income of $146.9 million, or $4.12 diluted EPS, in 2022.
Net charge offs as a percentage of average loans were 0.07% for 2024, as compared to 0.08% for the prior year. • Capital remained strong with a total CET1 ratio of 14.35%, up from 13.20% for the prior year, and total risk-based capital ratio of 16.63% as of December 31, 2024, an increase from 15.54% for the prior year. • We earned net income of $76.2 million, or $1.84 diluted EPS, during 2024 compared to net income of $104.1 million, or $2.53 diluted EPS, in 2023.
Variable rate loans comprise approximately 19% of the loan portfolio and, accordingly, the magnitude of the impact we experience from each rate increase is limited. • Decreases in the overall volume of average investment securities, somewhat offset by higher yields on the portfolio, resulted in decreased interest income of $1.2 million in 2023. • Although partially offset by lower average balances, higher yields on other interest-earning assets (primarily interest-bearing cash balance) in 2023 resulted in a $8.3 million higher interest income for the year. • The increase of $103.5 million in interest expense on deposits was driven by higher rates on accounts as we repriced deposits during the year in response to the market increases and to retain deposits to meet our funding needs, combined with higher volumes, primarily in money market deposit accounts and other time deposits. • Higher levels of borrowings, primarily in short-term FHLB advances to fund loan demand and deposit fluctuations, resulted in an increase in borrowings interest expense of $16.1 million in 2023.
Variable rate loans comprised approximately 23% of the loan portfolio at December 31, 2024, and, accordingly, the magnitude of the immediate yield impact we experience from each rate change is limited. • Decreases in the overall volume of average investment securities, partially offset by higher yields on the portfolio, resulted in decreased interest income of $4.8 million in 2024. • Higher volumes on other interest-earning assets (primarily interest-bearing cash balances) along with higher yields resulted in an increase in interest income of $12.8 million for the year. • The increase of $57.2 million in interest expense on deposits was driven by higher rates on accounts as we repriced deposits during late 2023 and the start of 2024 in response to the market increases and to retain and grow deposits to meet our funding needs, combined with higher volumes, primarily in money market deposit accounts. • Lower levels of borrowings, historically short-term FHLB advances to fund loan demand and deposit fluctuations, contributed $12.6 million to the decrease in borrowings interest expense, which, in total, decreased $12.4 million in 2024.
However, the economic pressures and uncertainties arising from the recent expansion in economic activity, increased consumer demand and rising interest rates to combat inflation have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, given the higher interest rate environment, which could make it difficult to grow assets and income.
However, the economic pressures and uncertainties, increased consumer demand and recent volatility in both short-term and long-term interest rates have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, given the current and expected interest rate environment, which could make it difficult to grow assets and income.
Our estimate of credit losses under CECL is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and allowance for unfunded commitments, as well as the resulting provision for loan losses and provision for unfunded commitments.
Our estimate of credit losses is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and allowance for unfunded commitments. The allowance for unfunded commitments is included in "Other liabilities" in the consolidated balance sheets.
Securities Portfolio Composition As of December 31, ($ in thousands) 2023 2022 2021 Securities available for sale: US Treasury securities $ 172,570 168,758 — Government-sponsored enterprise securities 60,266 57,456 69,179 Mortgage-backed securities 1,937,784 2,045,000 2,514,805 Corporate bonds 18,759 43,279 46,430 Total securities available for sale 2,189,379 2,314,493 2,630,414 Securities held to maturity: Mortgage-backed securities 12,085 15,150 20,260 State and local governments 521,593 526,550 493,565 Total securities held to maturity 533,678 541,700 513,825 Total securities $ 2,723,057 2,856,193 3,144,239 Average total securities during year, at amortized cost $ 3,216,327 3,356,486 2,367,591 The decrease in securities for the year ended December 31, 2023 was primarily due to regular principal repayments received on mortgage-backed securities.
Securities Portfolio Composition As of December 31, ($ in thousands) 2024 2023 2022 Securities available for sale: US Treasury securities $ 120,581 $ 172,570 $ 168,758 Government-sponsored enterprise securities 9,614 60,266 57,456 Mortgage-backed securities 1,897,175 1,937,784 2,045,000 Corporate bonds 15,692 18,759 43,279 Total securities available for sale 2,043,062 2,189,379 2,314,493 Securities held to maturity: Mortgage-backed securities 9,198 12,085 15,150 State and local governments 510,800 521,593 526,550 Total securities held to maturity 519,998 533,678 541,700 Total securities $ 2,563,060 $ 2,723,057 $ 2,856,193 Average total securities during year, at amortized cost $ 2,900,014 $ 3,216,327 $ 3,356,486 The decrease in securities for the year ended December 31, 2024 was primarily due to regular principal repayments received on mortgage-backed securities as well as maturities of other securities.
In 2023, the most significant factors that impacted our shareholders' equity were (1) $229.5 million of common stock issued for the acquisition of GrandSouth which increased equity; (2) $104.1 million net income reported for 2023, which increased equity, (3) common stock dividends declared of $36.1 million, which reduced equity; and (4) $33.9 million reduction in equity related to changes in AOCI driven by higher unrealized losses on AFS securities.
In 2024, the most significant factors that impacted our shareholders' equity were (1) $76.2 million net income reported for 2024, which increased equity, (2) common stock dividends declared of $36.3 million, which reduced equity; and (3) $26.0 million increase in equity related to changes in AOCI driven by lower unrealized losses on AFS securities.
Despite the growth in average earning assets, the market-driven increase in rates on liabilities occurred at a more rapid pace that the increase in yields on assets which resulted in the reduction in NIM for 2023. • Total interest income increased $147.8 million in 2023 as compared to 2022, driven by higher interest income on loans of $140.6 million related to a combination of higher volumes of average balances and increased yields. • The increase in interest expense of $126.0 million was driven by higher market rates which resulted in repricing of our deposits.
Despite the growth in average earning assets, the market-driven increase in rates on liabilities in the first half of 2024 occurred at a more rapid pace than the increase in yields on assets which resulted in the reduction in NIM for 2024. • Total interest income increased $30.3 million in 2024 as compared to 2023, driven by higher interest income on loans of $22.3 million related to a combination of higher volumes of average balances and increased yields.
The allowance for unfunded commitments is included in "Other liabilities" in the consolidated balance sheets. The provision for loan losses was $19.8 million in 2023 and $12.6 million in 2022. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under the CECL model.
The provision for loan losses was $18.8 million in 2024 and $19.8 million in 2023. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under the CECL model.
As shown in Note 4 to the consolidated financial statements, our accruing past due loans (30 or more days) totaled $29.8 million at December 31, 2023, with the majority (74.8%) being in the residential 1-4 family real estate category with the increase related primarily to the timing of year end over a weekend.
As shown in Note 4 to the consolidated financial statements, our accruing past due loans (30 or more days) totaled $38.0 million at December 31, 2024, with the majority (52.8%) being in the residential 1-4 family real estate category.
The increase in available lines of credit during 2023 was a result of additional loan and security collateral being transferred to the FHLB and the Federal Reserve to enhance the levels of off-balance sheet liquidity availability to meet demands, as necessary.
The increase in available lines of credit during 2024 54 Table of Contents was a result of the redemption of FHLB advances along with additional loan and security collateral being transferred to the FHLB and the Federal Reserve to enhance the levels of off-balance sheet liquidity.
We believe that he Bank can meet its contractual cash obligations and existing commitments from normal operations. Capital Resources and Shareholders’ Equity Shareholders’ equity at December 31, 2023 amounted to $1.4 billion compared to $1.0 billion at December 31, 2022.
We believe that the Bank can meet its contractual cash obligations and existing commitments from normal operations. Capital Resources and Shareholders’ Equity Shareholders’ equity at December 31, 2024 amounted to $1.4 billion, a $73.2 million, or 5.3%, incre ase from December 31, 2023.
At December 31, 2023, our leverage ratio was 10.91% compared to the regulatory well capitalized bank-level threshold of 4.00% and our total risk-based capital ratio was 15.54% compared to the 10.50% regulatory well capitalized threshold. The increase in capital levels in 2023 was related to the growth in net income.
At December 31, 2024, our leverage ratio was 11.15% compared to the regulatory well capitalized bank-level threshold of 4.00% and our total risk-based capital ratio was 16.63% compared to the 10.50% regulatory well capitalized threshold.
"Commercial and industrial" is the largest category of nonaccrual loans, at $9.9 million, or 30.7% of total nonaccrual loans, followed by "Commercial real estate - non owner occupied" at $7.2 million, or 22.4% of total nonaccrual loans and "Commercial real estate - owner occupied" at $7.0 million, or 21.9% of total nonaccrual loans.
"Commercial and industrial" is the largest category of nonaccrual loans, at $9.8 million, or 30.9% of total nonaccrual loans, followed by "Residential 1-4 family real estate" at $9.5 million, or 29.9% of total nonaccrual loans and "Commercial real estate - owner occupied" at $9.4 million, or 29.5% of total nonaccrual loans.
Year ended December 31, ($ in thousands) 2023 2022 2021 Interest income – increased by accretion of loan discount on acquired loans $ 11,507 5,621 6,107 Interest income - increased by accretion of loan discount on retained SBA loans 1,770 2,856 2,707 Total interest income impact 13,277 8,477 8,814 Interest expense – (increased) reduced by (discount accretion) premium amortization of deposits (3,101) 593 295 Interest expense – increased by discount accretion of borrowings (842) (254) (249) Total net interest expense impact (3,943) 339 46 Impact on net interest income $ 9,334 8,816 8,860 The most significant component of the purchase accounting adjustments in each year was loan discount accretion on purchased loans.
Year ended December 31, ($ in thousands) 2024 2023 2022 Interest income – increased by accretion of loan discount on acquired loans $ 8,938 $ 11,507 $ 5,621 Total interest income impact 8,938 11,507 5,621 Interest expense – (increased) reduced by (discount accretion) premium amortization of deposits (826) (3,101) 593 Interest expense – increased by discount accretion of borrowings (767) (842) (254) Total net interest expense impact (1,593) (3,943) 339 Impact on net interest income $ 7,345 $ 7,564 $ 5,960 The most significant component of the purchase accounting adjustments in each year was loan discount accretion on purchased loans.
Return on average common equity of 8.05% was reported for the year ended December 31, 2023 as compared to 13.40% for the prior year. • Our total assets at December 31, 2023 were $12.1 billion, a 14.0% increase from a year earlier, with growth driven by the GrandSouth acquisition, combined with organic loan growth during the year. • Total loans outstanding increased $1.5 billion, or 22.3%, during the year, which included $1.02 billion of loans acquired from GrandSouth.
Return on average common equity of 5.38% was reported for the year ended December 31, 2024, as compared to 8.05% for the prior year. • Our total assets at December 31, 2024 were $12.1 billion, a 0.3% increase from a year earlier. • Total loans outstanding contracted by $0.1 billion, or 0.7%, during the year.
The provision for loan losses represents our current estimate of life of loan credit losses in the loan portfolio and the provision for unfunded commitments represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances.
The provision recorded in each period represents the amount required such that the total ACL reflects the current estimate of life of loan credit losses in the loan portfolio and the allowance for unfunded commitments 40 Table of Contents reflects the current expected losses on unfunded loan commitments that are expected to result in outstanding loan balances.
Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments While management uses the best information available to establish the ACL, future adjustments to the ACL and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in 36 Table of Contents making the estimates.
These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. 33 Table of Contents Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments While management uses the best information available to establish the ACL, future adjustments to the ACL and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeEconomic Value Simulation Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities.
Biggest changeEconomic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet.
The model does not take into account any future actions that management may take to mitigate the impact of interest rate changes, and it is our strategy is to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk.
The model does not take into account any future actions that management may take to mitigate the impact of interest rate changes, and it is our strategy to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk.
Refer also to the discussion above under Earnings Simulation Analysis. 64 Table of Contents Impact of Inflation and Changing Prices Our financial statements included in Item 8 “Financial Statements and Supplementary Data” of this Report have been prepared in accordance with GAAP, which requires the financial position and operating results to be measured principally in terms of historic dollars without considering the change in the relative purchasing power of money over time due to inflation.
Refer also to the discussion above under Earnings Simulation Analysis. 61 Table of Contents Impact of Inflation and Changing Prices Our financial statements included in Item 8 “Financial Statements and Supplementary Data” of this Report have been prepared in accordance with GAAP, which requires the financial position and operating results to be measured principally in terms of historic dollars without considering the change in the relative purchasing power of money over time due to inflation.
When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics and which can negatively impact net interest income.
When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics and this can negatively impact net interest income.
We review pricing of our products and services, as well as our controllable operating and labor costs in light of current and expected costs due to inflation, to mitigate the inflationary impact on financial performance to the extent possible. 65 Table of Contents
We review pricing of our products and services, as well as our controllable operating and labor costs in light of current and expected costs due to inflation, to mitigate the inflationary impact on financial performance to the extent possible. 62 Table of Contents
Percentage change in Economic Value of Equity (1) Change in Interest Rates (in basis points) December 31, 2023 December 31, 2022 + 400 (7.8)% (11.9)% + 300 (6.0)% (8.9)% + 200 (4.3)% (6.0)% + 100 (1.4)% (2.3)% - 100 0.2% 0.7% - 200 (2.7)% (2.4)% - 300 (8.5)% (8.4)% - 400 (18.6)% (18.2)% (1) - The percentage change represents our economic value of equity in a stable rate environment as compared to the economic value of equity in the various rate scenarios with immediate and parallel shocks applied to the yield curve.
Percentage change in Economic Value of Equity (1) Change in Interest Rates (in basis points) December 31, 2024 December 31, 2023 + 400 (3.0)% (7.8)% + 300 (2.0)% (6.0)% + 200 (1.3)% (4.3)% + 100 0.2% (1.4)% - 100 (1.2)% 0.2% - 200 (5.1)% (2.7)% - 300 (11.8)% (8.5)% - 400 (21.0)% (18.6)% (1) - The percentage change represents our economic value of equity in a stable rate environment as compared to the economic value of equity in the various rate scenarios with immediate and parallel shocks applied to the yield curve.
Percentage change in Net Interest Income (1) Change in Interest Rates (in basis points) December 31, 2023 December 31, 2022 + 400 (6.1)% (1.4)% + 300 (4.8)% (1.2)% + 200 (3.5)% (1.0)% + 100 (1.6)% (0.3)% - 100 (3.6)% (1.5)% - 200 (4.0)% (5.1)% - 300 (3.8)% (10.1)% - 400 (4.3)% (15.1)% (1) - The percentage change represents the projected net interest income for 12 months on a flat balance sheet in a stable rate environment as compared to the projected net interest income in the various rate scenarios with immediate and parallel shocks applied to the yield curve.
Percentage change in Net Interest Income (1) Change in Interest Rates (in basis points) December 31, 2024 December 31, 2023 + 400 2.3% (6.1)% + 300 2.8% (4.8)% + 200 3.3% (3.5)% + 100 4.3% (1.6)% - 100 (0.1)% (3.6)% - 200 (0.8)% (4.0)% - 300 (1.4)% (3.8)% - 400 (2.3)% (4.3)% (1) - The percentage change represents the projected net interest income for 12 months on a static balance sheet in a stable rate environment as compared to the projected net interest income in the various rate scenarios with immediate and parallel shocks applied to the yield curve.
Because these assumptions are inherently uncertain, actual results may differ from simulated results. 62 Table of Contents Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates in both a "shocked" instantaneous move and a "ramped" move of rates.
Because these assumptions are inherently uncertain, actual results may differ from simulated results. 59 Table of Contents Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates in both a "shocked" instantaneous parallel move and a "steepening" move of rates.
Interest rates on different asset and liability accounts move differently when the prime rate changes and such assumptions are reflected in the different rate scenarios.
Interest rates on different asset and liability accounts move differently when the federal funds rate changes and such assumptions are reflected in the different rate scenarios.
The economic value simulation uses instantaneous rate shocks to the balance sheet and assumes a static average life of deposits in all interest rate scenarios. The following table presents the estimated change in net economic value for the specified change levels presented.
The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses instantaneous rate shocks to the balance sheet and assumes a static average life of deposits in all interest rate scenarios. The following table presents the estimated change in net economic value for the specified change levels presented.
The model results demonstrated in the above table are based on the immediate shock of each of the various rate scenarios and assume a continued inversion of the yield curve (i.e. a parallel shift of the yield curve) in both a rising and falling rate scenario.
The model results demonstrated in the above table are based on the immediate shock of each of the various rate scenarios and assume a consistent future slope (or lack thereof) of the yield curve (i.e. a parallel shift of the yield curve) in both a rising and falling rate scenario.
The Company’s market risk is composed primarily of interest rate risk inherent in the normal course of lending and deposit-taking activities. We are also exposed to market risk in our investing activities. We do not have any trading assets or activities.
The Company’s market risk is composed primarily of interest rate risk inherent in the normal course of lending, investing and deposit-taking activities. We do not have any trading assets or activities. Interest Rate Risk Net interest income is our most significant component of earnings and we consider interest rate risk to be our most significant market risk.
Starting in 2022 and continuing in 2023, the Company's sensitivity position shifted such that in the short-term it is projected that net interest income will likely fall in both a rising and falling rate environment.
With the FOMC increasing the target federal funds rate in 2022 and 2023, for December 31, 2023 the Company's sensitivity position was such that in the short-term it was projected that net interest income would likely fall in both a rising and falling rate environment.
As previously noted, these assumptions are inherently uncertain, and actual results may differ from simulated results. Further, the interest rate simulation models do not take into consideration growth, changes in balance sheet mix or composition, or other strategies that management would employee in either a rising or a falling rate scenario.
Further, the interest rate simulation models do not take into consideration growth, changes in balance sheet mix or composition, or other strategies that management would employee in either a rising or a falling rate scenario. 60 Table of Contents Economic Value Simulation Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments.
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Interest Rate Risk Net interest income is our most significant component of earnings and we consider interest rate risk to be our most significant market risk.
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Further, the estimations are based upon the Company's balance sheet as of period end and is not comparing future results to prior results, but rather comparing hypothetical future results under differing rate scenarios.
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From a net interest income perspective, the Company has been fairly neutral historically with no significant change in the short-term (within a 12-month period) and within the lower ranges (+ - 100-200 basis points) of interest rate changes.
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As of December 31, 2024 we expect net interest income to remain relatively stable in a plus 200 basis points or minus 200 basis point interest rate curve parallel shift scenario.
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This position is due in part to the changing market characteristics of certain loan and deposit products as well as to the current shape of the yield curve. The Company's current position is now more liability-sensitive which generally implies that net interest income would be expected to rise in a falling rate environment and fall in a rising rate environment.
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During the last four months of 2024, the FOMC decreased short term rates 100 basis points with a target federal funds rate of 4.25% - 4.50% at December 31, 2024.
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However, the rapid rate increases experienced beginning in 2022 through mid-2023 resulted in a steepening of the yield curve on the short end (within one year), while the longer end of the curve inverted between one and ten years, meaning that the yield on short-term instruments (less than one year) are higher than longer-term instruments (ten years).
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As evidenced by our results for 2024, the Company has reacted quickly to interest rate cuts by the FOMC and thus reduced the Company's total cost of deposits, thereby increasing net interest income.
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A flat or inverted interest rate curve is an unfavorable interest rate environment for many financial institutions, including the Bank, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing. When these rates converge or invert, the profit spread we realize between loan yields and deposit rates narrows, which pressures our NIM.
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As of December 31, 2024, assuming no change in the shape of the yield curve, the Company is reflecting an asset sensitive position, with relatively smaller changes in the declining scenarios, particularly -100 and -200 basis points. The shape of the yield curve also has a significant impact on the earnings of financial institutions, including the Company.
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In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced, after several periods of historically low federal funds rates and yields on Treasury notes, that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time.
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Generally speaking, when the yield curve is flat or inverted over time, banks experience a decrease in net interest income. Conversely, a positively sloping yield curve over time is generally favorable for financial institutions. Any additional flattening or inversion of the yield curve could have a material negative impact on the Company.
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Therefore, the FOMC increased the target range eleven times throughout 2022 and 2023. As of December 31, 2023, the target range for the federal funds rate had been increased 525 basis points to 5.25% - 5.50%.
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The Company continues to actively manage interest rate risk through the addition of variable rate assets and the pricing of interest bearing deposits.
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It remains uncertain whether the FOMC will further increase the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to its target level, begin to reduce the federal funds rate or leave the rate at its current elevated level for a lengthy period of time.
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As previously noted, these assumptions are inherently uncertain, and actual results may differ from simulated results.
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As demonstrated in the above table, we expect net interest income to decline in a rising interest rate environment, as has been experienced over the last year.
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As of December 31, 2024, the Company's EVE exposure to rising rates has improved at all levels and exposure to declining rates has depreciated slightly as the short term rates have fallen about 100 basis points during the last four months of 2024.
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This is due in large part to the composition of our loan portfolio which consists of approximately 19% variable rate loans that could immediately reprice, thus limiting the magnitude of the impact of rate increases.
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The improvement in EVE under a rising rate environment is driven by repositioning of the Company's assets to be less negatively impacted by rising rates, generally through an increase in variable rate assets.
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In addition, the model includes an assumption of an immediate repricing up of the funding base in a rising rate environment due to the current competitive deposit market, combined with a continued utilization of wholesale funding in the form of short-term borrowings at our current level in order to maintain a similar balance sheet composition which has led to a narrowing of the interest rate spread in the projection.
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The decline in EVE under some of the declining rate environments is driven by the actual decline in rates during the year as well as repayment of wholesale borrowings through more stable deposits which are modeled to show more fluctuation in EVE, but which are a preferred funding source.
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With regard to 63 Table of Contents declining rates, assuming an immediate decrease or shock in market rates over the short-term (12-month horizon), we also expect to realize a decline in net interest income, although not to the extent projected in the prior year.
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Portions of the Company's deposits are also nearing their modeled floor rates and therefore reflect a negative projected change in value.
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The declining net interest income in a falling rate scenario is related to the repricing of interest-earning assets to lower rates while non-maturity interest-bearing deposits are projected to be at or near their floor within a -200 basis point shock, thus limiting our ability to keep pace with asset rate declines.
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The improvement in our position in the falling rate scenario as compared to the prior year is related to the actual rate increases experienced in 2023 providing additional repricing opportunity on the liability side of the balance sheet in a declining rate scenario.
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The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation.
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As of December 31, 2023, the Company’s economic value of equity continued to be generally liability sensitive in both a rising and falling interest rate environment, similar to its position as of December 31, 2022, while the extent of exposure to rising rates has improved somewhat from the prior year end.
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The decline in EVE under a rising rate environment is driven by the composition of the loans and investment portfolios, primarily related to CRE fixed rate loans and fixed rate mortgage-back securities. In a rising rate environment, these portfolios tend to extend due to slower prepayments, thus lowering their relative valuation in the EVE calculation.
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With regard to the falling rate scenario, the non-maturity deposits, generally with lower betas, continue to be at or near floor rates assumed in the model, thus within the -200 shocked interest rate scenario, essentially all on the non-maturity deposits are at or near their floor thus negatively impacting their value in the EVE calculation while variable rate assets continue to price downward in all falling rate scenarios.

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