It is again appropriate to use a quote from Booker T. Washington, American scholar, author, and adviser to presidents, as we describe the circumstances in business today and over the past several years.
He said: "Success can be measured not so much by the station we reach in life, as by the obstacles we overcome in our quest to succeed."
That quote has certainly been relevant as we have responded to the challenges of the past several years.
Martin T. Neat, Retired President & CEO
Let me first say, that any amount of inconvenience or concern that we may have felt at times during 2021 is minor compared to the pain and suffering of more than 65 million of our fellow americans who suffered from COVID-19, of the more than 850,000 families in this country who lost loved ones to this terrible disease and indeed to the nearly 1,200 familes of friends, neighbors, and association members on the Lower Shore of Delmarva who perished from COVID-19 during the past two years.
That being said, First Shore Federal has been fortunate. COVID-19 and its impact on the economy will simply be remembered as an obstacle in 2021. There were of course other direct and indirect challenges as we continue to pray that this worldwide pandemic will soon be one for the history books.
The historically low interest rate environment created to address the economic disruption of COVID-19 is particularly challenging to a portfolio lending institution such as First Shore Federal. It produces both ultra-low loan rates and negatively affects our savings customers by pushing rates very low. We were impacted by both during 2021 as I will describe later.
Those rates did have a very positive impact on borrowers and the economy, in general, significantly improved during 2021.
In fact, by year-end, the unemployment rate for Maryland's Lower Shore had declined to 5.6%, down more than 2% from the year-end 2020 number. Moreover, the comparable rate for Sussex County was 3.8% - near its pre-pandemic level.
During 2020, in response to the pandemic and accompanying economic problems, the association deferred payments for more than 100 of our loan customers. During 2021, nearly all of those customers had resumed payments.
The COVID-19 pandemic has produced other operational challenges. Our branch lobbies have periodically closed during localized outbreaks of the virus, making our typical friendly and professional interaction with customers more difficult.
A significant number of our staff periodically worked from remote stations or different offices to ensure appropriate social distancing as the years have passed.
Even so, more than 40% of our staff missed significant time due to the need to isolate after potential exposure to the COVID-19 virus.
Yet, while some obstacles, including the need to eradicate COVID-19 still remain, and interest rates continue to be near historically and artificially low levels, we are confident that First Shore Federal will continue to progress and prosper in the years ahead.
So, I am pleased to report that during 2021, First Shore Federal remained highly capitalized, realized strong growth with significantly increased earnings, continued to provide outstanding customer and community service, and improved its ability to provide that service by expanding use of technology.
Overall, the association’s assets grew by 6.5% and our capital increased by 2.7% as of year-end. In fact, based on one key measure, our net worth or capital ratio of more than 14.8%, First Shore Federal is the most highly capitalized financial institution headquartered on the Eastern Shore.
And First Shore Federal again earned a 5-star rating, the highest rating awarded for financial stability from Bauer Financial, a leading independent financial rating and research firm.
With nearly $52 million in capital, First Shore Federal is well positioned to continue the positive trends of many years and to prosper in the years ahead.
Total expenses for 2021 were reduced by 7.7% overall as the association “tightened its belt” while at the same time, continuing to invest in the future. In fact, technology expense, rather investments, grew as we took aggressive action to grow our capacity for the future as well as respond to the COVID-19 related needs of 2020 & 2021.
By the beginning of 2020, we had upgraded our operating systems and improved our communication lines that prepared us to enable employees to work at multiple locations and to increase social distancing during the pandemic. Once the pandemic was changing the work environment, we acted quickly to enable First Shore Federal to continue to securely work and handle customer needs.
Technology also allowed us to communicate and work together regardless of our physical location. The "IT Team" worked with our employees so they could continue excellent customer service if they had to be quarantined. These efforts continue today.
The team worked on new products that will be put in place in 2022 including business debit cards, temporary debit cards, a new debit card app, and remote deposit capture for our consumer customers.
The use of remote banking increased in importance during the pandemic and further products and services will be added to improve our customer experience in the coming years.
As I stated earlier, the ultra-low interest rate environment was a major challenge, particularly after the reductions due to the COVID-19 crisis.
Even as we experienced 425 loan payoffs totaling $35 million largely due to the low-rate environment, the association added 438 new loans of more than $52.2 million.
Among those 438 new loans were 155 mortgages for more than $23 million, 158 manufactured homes for more than $12.7 million, and 60 commercial loans for more than $13.7 million.
Overall, this solid growth in key categories such as commercial loans, manufactured home loans, and share loans has positioned the association to offset some of the interest rate risk in today's environment.
On the deposit side, the association achieved impressive deposit growth of more than 8.8%, reaching a record of $295.1 million in deposits by year-end. That growth included $5.3 million in savings accounts, $7.8 million in money market accounts, and $15 million in checking accounts. The growth in share loans, i.e. loans secured by CDs is a particularly attractive way for customers to borrow money in today's interest rate environment while once again offsetting interest rate risk for First Shore Federal.
The ultra-low interest rate environment of 2021 meant that the pricing that we could extend in two of our traditional niches – home mortgages and certificates of deposit was difficult. As a result, our balances in both of those categories fell modestly. Mortgage balances declined by more than $9.7 million and CDs by more than $4.6 million.
Considering the substantial interest rate risk which long term, low fixed rate mortgages present to a portfolio lender such as First Shore Federal, the shift from both of these categories is actually positive although it's not how we would like to have made this evolution.
Ultra-low rates are a “win-lose” proposition. On one hand borrowers benefit from the extremely low loan rates. On the other hand, those customers who have traditionally depended upon FDIC insured CDs for monthly income are significantly burdened.
Indeed, as is clear from the growth in other deposit categories for First Shore Federal, many of these customers shifted their deposits into other types of savings with First Shore Federal.
It is also clear from recent Federal Reserve System announcements that a return to a more balanced interest rate environment which serves the needs of both borrowers and savers is likely during 2022.
We are very well positioned to serve the needs of both types of customers going forward.
Community service remains a key part of our mission. We used an advertising slogan of “Community Minded – Just Like You”. And I am proud to report that the association continues to be recognized as a leading community citizen.
First Shore Federal holds a rating of outstanding for community reinvestment by our federal regulator – a rating which the association has held for more than 25 years. Our directors, officers and staff continued to support numerous community groups and projects during 2021 – in many cases, in leadership roles.
Among those roles were the chairman of the Wicomico County Board of Education, the chair of the board of Habitat of Wicomico County, chair of Salisbury Neighborhood Housing Service, chair of the Community Foundation of the Eastern Shore, vice chair and board member of the Maryland State Board of Education, vice chair of the Village of Hope, chair of the Wor Wic Community College capital campaign, co-chair of the 75th anniversary celebration of the United Way of the Lower Shore, and chair of the investment committee of the Community Foundation.
2021 also saw another landmark for the association with my retirement at year-end after 30 years as president and CEO. More importantly, it saw the elevation of the association's chief financial officer, Diane Turner, to the position of president and CEO. Accompanying promotions were made internally for chief financial officer and controller. We are very proud to have been able to promote from within for these key posts along with recruiting a new controller.
From a personal level, I want to again thank our outstanding board of directors for the support and oversight that you have provided during my tenure at First Shore Federal. It has been a great honor to serve in the post that I have recently vacated. I look forward to working with you as a board member in the years ahead.
The leadership team, which is now in place at First Shore Federal, headed by Mrs.Turner, is extremely strong and capable. And I can say without question, the association's best days are ahead. In addition to the capable leadership, First Shore Federal has money to lend and a strong capital level to support growth.
Growth is important. It helps to fund new products and services to our members. It enables us to continue to pay competitive interest rates and to afford other operating expense to fulfill this mission. And it allows us to support the communities that are so good to First Shore Federal in return.
And, as a mutual institution and locally focused institution, First Shore Federal always looks to the future of our community.
This strategy has served the association well as First Shore Federal’s historically strong capital position has continued to grow impressively.
As we enter our 69th year of service to the Lower Shore, we can do so with continued enthusiasm and confidence in the association’s long-term future.
First Shore Federal will continue to expand our services and make improvements to the association’s branches, products, and services.
We will continue to evolve and to invest in technology and services that will meet our customers’ needs while being safe and profitable for the association.
The association enters 2022 with the strongest capital position in our history, a substantial reserve for any loan problems that do arise, an excellent reputation in the communities we serve, a dedicated and experienced staff and an ongoing commitment to customer service and making First Shore Federal the best it can be.
We thank our managers and employees for their dedication and ever-present teamwork, our outstanding board of directors for its wisdom, oversight and direction, and our valued customers, our members, for their confidence in and business with First Shore Federal.