Executive Overview

The Corporation saw positive changes in its financial condition and results of operations in 2024 compared to 2023. Total assets increased 6.2% to $2.4 billion, driven by a 7.3% increase in portfolio loans to $2.0 billion. Consolidated net income grew 23.4%, with return on average assets and equity improving to 0.70% and 9.93% respectively. Net interest income rose 3.0% due to higher earning assets, while non-interest income jumped 29.3% on stronger mortgage banking performance.

Financial Performance

The Corporation’s net income for 2024 was $16.3 million, up from $13.2 million in 2023. This 23.4% increase was driven by growth in both net interest income and non-interest income.

Net interest income, the difference between interest earned on loans/investments and interest paid on deposits/borrowings, rose 3.0% to $71.3 million. This was due to a 6.2% increase in average earning assets, which offset a 19 basis point decline in net interest margin to 3.16%. The margin compression was caused by deposit costs rising faster than asset yields in the rising rate environment.

Non-interest income, which includes mortgage banking, wealth management, and other fees, grew 29.3% to $41.3 million. Mortgage banking revenue increased $4.5 million or 27.3% on a 28.6% rise in loan originations, despite higher rates. Wealth management income also improved by $807 thousand or 16.4%.

Non-interest expense increased 2.6% to $79.1 million, with higher occupancy, professional fees, and other costs partially offset by lower advertising and data processing expenses. The efficiency ratio, a measure of expenses relative to revenue, improved to 70.1% from 72.0% in 2023.

Asset Quality

Asset quality metrics showed some deterioration in 2024. Non-performing assets increased to 1.90% of total assets, up from 1.58% in 2023. Non-performing loans rose $11.4 million to $45.1 million, driven by increases in construction, residential real estate, and small business loans.

Net charge-offs also increased significantly, from $5.6 million in 2023 to $15.8 million in 2024. This was primarily due to $5.9 million in lease charge-offs, as well as $4.8 million and $4.3 million in commercial and small business loan charge-offs, respectively.

Despite the rise in non-performing assets and net charge-offs, the allowance for credit losses (ACL) declined to 0.91% of total loans (excluding fair value loans) from 1.17% in 2023. This was largely due to the charge-offs taken, which reduced the need for specific reserves on those impaired loans.

Loans and Deposits

The loan portfolio grew 7.6% to $2.1 billion, with the largest increases in commercial real estate (up 11.7%), commercial & industrial (up 21.3%), and small business loans (up 9.4%). Residential mortgage loans declined 3.1%, while home equity and construction loans saw double-digit percentage increases.

On the funding side, total deposits rose 10.0% to $2.0 billion. This was driven by a $165.7 million or 22.2% increase in money market and savings deposits, partially offset by a $9.5 million or 6.3% decline in interest-bearing demand deposits. Non-interest bearing deposits were relatively flat, up just 0.7%.

Capital and Liquidity

Stockholders’ equity increased to $171.5 million at the end of 2024, up from $158.0 million a year earlier. This 8.6% growth was due to retained earnings and other comprehensive income, partially offset by dividends paid. The Corporation’s capital ratios remained strong, with a Tier 1 capital ratio of 8.1% and a tangible common equity ratio of 7.0%.

Liquidity also improved, with available liquidity increasing from $273.4 million to $315.8 million. This includes cash, investments, and other liquid assets. The Corporation also maintains significant borrowing capacity, with $699.3 million available from the FHLB and $56.0 million in unsecured federal funds lines.

Outlook

The Corporation enters 2025 in a solid financial position, with good momentum in loan growth, profitability, and capital strength. However, the challenging economic environment, including high inflation, rising interest rates, and recession risks, present headwinds that will need to be carefully managed.

Loan demand is expected to remain strong, particularly in commercial real estate, C&I, and small business segments. But credit quality bears watching, as evidenced by the rise in non-performing assets and net charge-offs in 2024. The Corporation will need to balance prudent underwriting with supporting customer needs.

On the funding side, deposit growth may moderate as higher rates impact consumer and business behavior. The Corporation will need to remain disciplined on pricing to protect its net interest margin. Fee income from mortgage banking and wealth management should continue to be important contributors.

Overall, the Corporation appears well-positioned to navigate the uncertain economic conditions ahead. Its diversified business model, strong capital base, and experienced management team provide a solid foundation. Continued execution of its strategic priorities around lending, deposits, and fee income will be critical to sustaining profitability and shareholder value.